# Example: Healthy Unit Economics & Efficient Scaling

**Company:** CloudAnalytics (mid-market business intelligence SaaS)
**Stage:** Series B growth stage
**Customer Base:** 500 accounts, 12,000 users
**Period:** Q2 2024

---

## Unit Economics

### Gross Margin
```
Quarterly Revenue: $6,000,000
COGS:
  - AWS hosting & infrastructure: $600,000
  - Payment processing (2.5%): $150,000
  - Customer onboarding: $150,000
Total COGS: $900,000

Gross Profit: $5,100,000
Gross Margin: 85% ✅
```

### CAC by Segment
```
SMB:
  - S&M Spend: $200K/quarter
  - New Customers: 50
  - CAC: $4,000

Mid-Market:
  - S&M Spend: $400K/quarter
  - New Customers: 40
  - CAC: $10,000

Enterprise:
  - S&M Spend: $300K/quarter
  - New Customers: 10
  - CAC: $30,000

Blended CAC: $9,000
```

### LTV by Segment
```
SMB:
  - ARPU: $250/month
  - Monthly Churn: 3%
  - Gross Margin: 82%
  - LTV: ($250 × 82%) / 3% = $6,833

Mid-Market:
  - ARPU: $1,200/month
  - Monthly Churn: 2%
  - Gross Margin: 85%
  - LTV: ($1,200 × 85%) / 2% = $51,000

Enterprise:
  - ARPU: $5,000/month
  - Monthly Churn: 1%
  - Gross Margin: 88%
  - LTV: ($5,000 × 88%) / 1% = $440,000

Blended LTV: $45,000
```

### LTV:CAC Ratios
```
SMB: $6,833 / $4,000 = 1.7:1 ⚠️ (marginal)
Mid-Market: $51,000 / $10,000 = 5.1:1 ✅ (excellent)
Enterprise: $440,000 / $30,000 = 14.7:1 ✅ (outstanding)

Blended: $45,000 / $9,000 = 5:1 ✅
```

### Payback Periods
```
SMB: $4,000 / ($250 × 82%) = 19.5 months ⚠️
Mid-Market: $10,000 / ($1,200 × 85%) = 9.8 months ✅
Enterprise: $30,000 / ($5,000 × 88%) = 6.8 months ✅

Blended: 11 months ✅
```

---

## Capital Efficiency

### Burn Rate & Runway
```
Monthly Expenses:
  - S&M: $300,000
  - R&D: $400,000
  - G&A: $150,000
  - COGS: $300,000
Gross Burn: $1,150,000/month

Monthly Revenue: $2,000,000
Net Burn: -$850,000/month (profitable! ✅)

Cash Balance: $25,000,000
Runway: Infinite (profitable)
```

### Operating Expenses
```
Annual Revenue: $24M

OpEx:
  - S&M: $3.6M (15% of revenue) ✅
  - R&D: $4.8M (20% of revenue) ✅
  - G&A: $1.8M (7.5% of revenue) ✅
Total OpEx: $10.2M (42.5% of revenue)

Net Income: $24M - $3.6M - $10.2M = $10.2M
Profit Margin: 42.5% ✅
```

---

## Efficiency Ratios

### Rule of 40
```
Revenue Growth Rate: 45% YoY
Profit Margin: 42.5%
Rule of 40 = 45% + 42.5% = 87.5 ✅ (outstanding!)
```

### Magic Number
```
Q2 Revenue: $6M
Q1 Revenue: $5.2M
Increase: $800K

Q1 S&M Spend: $850K
Magic Number: ($800K × 4) / $850K = $3.2M / $850K = 3.76 ✅ (excellent!)
```

### Operating Leverage (Last 4 Quarters)
| Quarter | Revenue | Rev Growth | OpEx | OpEx Growth | Leverage |
|---------|---------|------------|------|-------------|----------|
| Q3 2023 | $4.5M | - | $2.2M | - | - |
| Q4 2023 | $5.0M | 11% | $2.4M | 9% | Positive ✅ |
| Q1 2024 | $5.2M | 4% | $2.5M | 4% | Neutral |
| Q2 2024 | $6.0M | 15% | $2.55M | 2% | Positive ✅ |

**Analysis:** Revenue growing faster than OpEx = positive operating leverage.

---

## Analysis

### ✅ Exceptional Strengths

**Outstanding unit economics:**
- 5:1 blended LTV:CAC (healthy range: 3-5:1)
- 11-month blended payback (target: <12 months)
- 85% gross margin (well above 70% SaaS benchmark)
- Mid-market and enterprise segments have stellar economics

**Profitable growth:**
- 42.5% profit margin (exceptional for growth-stage SaaS)
- Rule of 40 = 87.5 (nearly double the 40 threshold)
- Infinite runway (profitable, no burn)

**Efficient go-to-market:**
- Magic number = 3.76 (well above 0.75 threshold)
- For every $1 in S&M spend, generating $3.76 in new ARR
- Positive operating leverage (revenue growing faster than costs)

**Segment optimization:**
- Enterprise: 14.7:1 LTV:CAC, 7-month payback (amazing)
- Mid-market: 5.1:1 LTV:CAC, 10-month payback (excellent)
- SMB: 1.7:1 LTV:CAC, 19.5-month payback (marginal)

---

### 📊 Opportunities for Optimization

**SMB segment underperformance:**
- 1.7:1 LTV:CAC is below 3:1 threshold
- 19.5-month payback is concerning
- Contributing to blended metrics, but dragging them down

**Potential actions:**
1. **Reduce SMB CAC** (improve conversion, shorten sales cycle)
2. **Increase SMB LTV** (reduce churn, add expansion paths)
3. **Deprioritize SMB** (shift budget to mid-market/enterprise)

**Channel allocation:**
- Enterprise has 14.7:1 LTV:CAC but only 10 new customers/quarter
- Could scale enterprise acquisition more aggressively

---

## Recommended Actions

### 1. Scale Enterprise Acquisition (High Priority)
**Why:** 14.7:1 LTV:CAC and 7-month payback = massive opportunity.

**Actions:**
- Increase enterprise S&M budget from $300K to $500K/quarter
- Hire 2 enterprise AEs
- Target 20 enterprise logos/quarter (up from 10)

**Expected impact:**
- Additional $200K/quarter S&M spend
- 10 additional enterprise customers
- 10 × $30K CAC = $300K investment
- 10 × $440K LTV = $4.4M in LTV created
- Net value creation: $4.1M

---

### 2. Optimize or Exit SMB Segment (Medium Priority)
**Why:** 1.7:1 LTV:CAC is marginal; 19.5-month payback strains cash (even though profitable overall).

**Option A: Optimize SMB**
- Reduce CAC through self-serve onboarding (target $2K CAC)
- Improve retention to 2% monthly churn (boost LTV to $10,250)
- New LTV:CAC: 5.1:1 (healthy)

**Option B: Exit SMB**
- Stop SMB acquisition, reallocate $200K/quarter to mid-market/enterprise
- Focus on higher-quality segments with better economics

**Recommendation:** Try Option A for 2 quarters. If LTV:CAC doesn't improve to >3:1, exit SMB.

---

### 3. Maintain Profitability While Scaling (Ongoing)
**Why:** 42.5% profit margin + 45% growth is exceptional. Don't sacrifice this.

**Actions:**
- Continue positive operating leverage (revenue growth > cost growth)
- Maintain Rule of 40 >40 (ideally >60)
- Reinvest profits strategically in highest-ROI channels

---

### 4. Monitor Magic Number by Segment (Ongoing)
**Current blended magic number:** 3.76 (excellent)

**Calculate by segment:**
- If enterprise magic number is 5+, scale aggressively
- If SMB magic number is <0.5, consider exiting

---

## Success Metrics (Next 12 Months)

**Growth targets:**
- [ ] Reach $36M ARR (50% YoY growth)
- [ ] Maintain >40% profit margin
- [ ] Rule of 40 >70

**Unit economics targets:**
- [ ] Blended LTV:CAC remains >4:1
- [ ] Blended payback remains <12 months
- [ ] SMB LTV:CAC improves to >3:1 or exit segment

**Efficiency targets:**
- [ ] Magic number remains >2.0
- [ ] Positive operating leverage every quarter
- [ ] S&M efficiency: <20% of revenue

---

## Key Takeaway

This is a model SaaS business:
- Profitable AND growing (rare combination)
- Exceptional unit economics (5:1 LTV:CAC, 11-month payback)
- Highly efficient GTM (3.76 magic number)
- Strong balance (Rule of 40 = 87.5)

**Main opportunity:** Scale enterprise aggressively while optimizing or exiting SMB segment. The business can sustain aggressive growth without burning cash.
