The Complete SaaS Unit Economics Guide (2025 Edition)

Measuring and monitoring unit economics can help your SaaS brand make informed business and engineering decisions.

But how do you get that data, and what exactly are SaaS unit economics? We’ll cover exactly what SaaS unit economics are, metrics you should monitor, how to calculate your unit economics, and the tools you can use to be successful.

What Is SaaS Unit Economics?

Unit economics refer to the revenue and costs of a business measured on a per-unit basis. Often, they describe how a specific unit will impact a company’s costs, revenues, and other essential financial metrics.

Within the SaaS industry, this usually refers to how the addition (or loss) of a new customer will influence the company’s bottom line and financial performance.

But what exactly is a “unit”?

A unit will always represent a customer in one way or another. How this is defined depends on the business and industry.

SaaS typically uses a “units-as-customers” model, where each customer is considered a single unit, regardless of the number of subscriptions they purchase.

For example, say you have a large organization that purchases several subscriptions of your software (or several user seats). Although this company has purchased several subscriptions, they are still treated as a single unit.

Compare this to the “units-as-products-sold” model, where each subscription is counted as one unit. This model is more common for physical products, where production costs are associated with each item sold.

Why Should SaaS Companies Track Unit Economics?

We’ve covered how SaaS unit economics are defined and highlighted a few benefits, but let’s dive deeper into this topic. Why should you care about SaaS unit economics, and why are they important for your business to track?

Ultimately, the answer is simple. Understanding your unit economics will allow your company to make informed business, product, and engineering decisions with cost in mind. For example, if you know that a specific customer segment costs your business more, you can:

There are several moves you can make, but you won’t know how to move forward unless you understand your unit costs. Understanding your unit costs becomes even more critical as your business scales.

Take what happened during the COVID-19 pandemic, where many companies saw a drastic increase or decrease in usage of their software.

For companies that saw a dramatic increase in usage, they’d want to know:

Increasing the number of users is only good news if each new user can be served profitably. Companies don’t want to find themselves in a situation where they are scaling up but losing more money with each additional customer, or scrambling to address the tech debt from an inefficient system amid a usage explosion.

While you grow and bring on more and more customers, it’s natural that your costs will increase. What’s important to know is how your unit economics are affected by this growth (whether they remain flat, increase, or decrease), so you can ensure profitability for your company.

On the other hand, what about the businesses that saw their customers nearly disappear overnight?

In this case, ideally, cloud costs would have also scaled down. If they didn’t, though, it’s because these companies had some fixed capacity (often related to storage) that doesn’t scale down automatically. While scalability and elasticity are core advantages of using the public cloud, it’s also a mistake to think that they are out-of-the-box features.

The reality is that cost elasticity has to be a part of the architectural design — it’s not an automatic result of moving to the cloud. In most cases, though, as long as you have visibility into the system to see where the costs are coming from, you can scale down manually.

If users decline, a detailed understanding of your unit economics, including your fixed costs and variable costs, as well as strategies to minimize costs as much as possible during the downturn, can be the difference between scaling back up in six months or permanently closing your doors.

Let’s look at one more example of how understanding your unit economics can be beneficial — determining your free tier offerings.

At face value, giving away anything for free might seem like an economically irrational decision. However, the freemium model has proven effective within the SaaS industry and may yield long-term dividends for your business. The key here, however, is to understand how customers use your free tier and what it costs your business to offer specific features or products for free, per customer.

A free tier can be a great way to attract new signups, but it can also be dangerous, as the company isn’t generating any revenue from these new users.

Take, for example, Drift in March 2020.

During this time, the company saw a significant increase in free-tier users of their chatbot — and suddenly, their unit economics were totally off. Too many free-tier users could tank the company if increasing cloud costs were left unchecked.

Luckily, Drift already had visibility into their costs, so they were able to:

Again, understanding your unit economics and knowing just how much specific features, products, and customers cost your business allows you to make informed decisions that drive profitability for your company.

10 Essential SaaS Unit Economics Metrics To Track

Utilizing the right unit economic metrics can help SaaS companies identify opportunities and plan for the future.

Some key SaaS unit economic metrics to pay attention to include:

For a deeper dive into SaaS performance tracking, check out this guide to 17 critical SaaS metrics every company should monitor.

How To Calculate SaaS Unit Economics (With Formulas)

Many of the metrics mentioned in the previous section use a consistent formula, making it easier to track your business’s performance over time and also compare it to similar organizations.

Some of the information needed to calculate and measure unit economics can be found on your two most important financial statements: the income statement and the balance sheet. The rest of the information can be found on your performance reports.

What are the most useful SaaS unit economic formulas to use today?

Lifetime value = Average revenue per unit (ARPU) / revenue

This formula helps you calculate the expected revenue from a customer over the lifetime of their subscription. This can help you understand and predict the total value of a customer. In turn, you can make well-informed decisions about how much to spend on acquiring and retaining customers.

You can also use this data to identify and target the most profitable customers. You can do this by segmenting customers based on their value to the business and then investing more resources into acquiring and retaining them.

Customer acquisition cost = (Total marketing expenses + total sales expenses) / number of new customers acquired

This formula indicates the average cost of acquiring a new customer. You can compare your CAC with those of your industry peers to determine if yours is healthy. If your CAC is high, you’re eating into your margins, leaving money on the table.

A low CAC can indicate that your product-market fit is excellent, allowing you to attract and retain customers with minimal conventional marketing effort. For example, a low CAC may indicate a high volume of referrals, such as those generated through word of mouth and positive online reviews.

Churn rate = Customers who left during period/customers at beginning of the period

This formula helps businesses measure customer retention, revenue stability, and overall customer satisfaction. By understanding your churn rate, you can track areas that could be leading customers to leave.

A high churn rate in SaaS may indicate poor customer service, poor product-market fit, low product value, or inadequate customer engagement. It can also be an indication of low customer satisfaction and ineffective retention strategies.

It is crucial to analyze the reasons behind a high churn rate to develop effective strategies to reduce it.

A low churn rate, however, can be an indicator of excellent product-market fit, smooth customer experiences, and effective customer retention strategies.

Average customer lifetime value = Average customer lifespan / average customer value

The ACLTV formula helps you understand how much revenue you can expect to receive from a customer throughout their subscription.

If your ACLTV is high, it means you are generating more revenue from each customer, and this is a good sign that your business is healthy. It may indicate that you have a strong product or service that customers are loyal to, and that they are willing to spend more money on.

A low ACLTV could indicate that you have a faulty pricing model or prices, high customer acquisition costs, or poor customer retention strategies.

Calculating metrics like cost per customer and cost per feature can help you identify these issues and adjust your pricing models or customer acquisition strategies accordingly.

Most SaaS unit economic metrics are simple ratios, or at least indirect derivatives of these ratios. Calculating these metrics is fairly straightforward, as long as the numbers you are inputting are accurate.

Identifying and measuring metrics, such as cost per customer or cost per feature, can be more challenging, though.

For example, if you use AWS as your cloud service provider, you may receive a bill at the end of the month showing what you spent on the various services you use, but you have no context for how those costs translate to your business.

For this, you will need a cloud cost intelligence platform that can map costs to specific features, products, and more in your business — and show you exactly what AWS services cost you the most and why. 

For more on tracking cloud costs, see our complete cloud unit economics guide.

With that in mind, let’s move on to some different tools and software you can use to monitor your unit economics.

Tools For Measuring And Monitoring SaaS Unit Economics

Unit economics play an important role within the SaaS industry, so it’s no surprise that there are robust SaaS tools available to help you track and manage them.

Here are a few of the top options:

CloudZero

CloudZero is a cloud cost intelligence platform that enables SaaS companies to map cloud costs to products, features, teams, and more, as well as identify and monitor unit costs such as cost per customer.

For instance, CloudZero’s cost per customer report enables teams to see how individual customers contribute to their cloud spend and how specific customers impact their feature costs.

CloudZero also enables engineering teams to drill down into cost data from a high level to the individual components that drive their cloud spend — and see exactly which AWS services cost them the most and why.

With detailed cloud cost intelligence, you can make informed decisions to reduce spend or adjust infrastructure for profitability. To see CloudZero in action, .

Related read:  What Is Cloud Unit Economics (CUE)? A Comprehensive And, More Importantly, Fun Guide.

Updata

Updata offers a useful unit economic framework that specifically caters to SaaS companies. The framework can be used to break down expenses by unit, helping decision-makers gain deeper insights.

Chart Mogul

ChartMogul offers a straightforward platform that can help companies track a range of SaaS analytics. The easy-to-read dashboard, combined with clear charts, helps make this platform popular within the industry. The tool is specifically helpful for measuring SaaS metrics, such as the number of customers and churn rate.

Improving SaaS Unit Economics With Cloud Cost Intelligence

For SaaS businesses, cloud spend is a significant component of the cost per customer, and accurately identifying and measuring this metric is nearly impossible with traditional cloud cost management tools or those provided by cloud service providers. This is where a cloud cost intelligence platform like CloudZero comes in.

CloudZero can help your SaaS company map costs to specific products, features, teams, and more, as well as identify cost per customer. Now, picture this:

In addition, you can view costs from three perspectives:

Using CloudZero, you can allocate 100% of your cloud spend in minutes to hours, track cost anomalies in real time, and create accurate budgets and forecasts.

These and more capabilities have helped customers like Drift, Remitly, Malwarebytes, and Upstart lower their annual cloud costs (Drift saved over $3 million) and understand exactly what is affecting their cloud costs — and why — and take action.

and take the guesswork out of SaaS unit economics.