Core answer: the growth engine passes when LTV/CAC > 3 with CAC payback under 12 months; inventory turnover (annual COGS ÷ average inventory) of 6–12 is healthy for e-commerce, while below 3 means cash is sleeping on shelves; dilution compounds — three rounds of 15-20% each leave founders with roughly half their company.
The three metrics at a glance
| Metric | Formula | Health line |
|---|---|---|
| LTV/CAC | lifetime value ÷ acquisition cost | > 3 |
| CAC payback | CAC ÷ (monthly revenue × gross margin) | < 12 months |
| Inventory turns | annual COGS ÷ average inventory | 6–12 (e-commerce) |
| Founder equity | multiplied by (1 − dilution) each round | model before signing |
CAC and LTV: the unit economics
CAC = total sales & marketing spend ÷ new customers acquired. Blend paid ads, content, and salaries — “ad-spend-only CAC” flatters reality.
LTV = average order value × purchase frequency × gross margin × retention years (subscription: monthly ARPU × margin × expected months).
| Business | Typical CAC payback | Notes |
|---|---|---|
| SaaS subscription | 5–12 months | margin ~80% makes LTV forgiving |
| E-commerce first order | immediate or <3 months | thin margins demand fast payback |
| Marketplace | 6–18 months | two-sided CAC doubles the work |
LTV/CAC benchmarks
- < 1: every customer loses money — stop scaling, fix the model
- 1–3: viable but fragile; churn or CAC inflation breaks it
- 3–5: healthy growth zone
- > 5: possibly under-investing in growth
Inventory turnover: cash on shelves
Turnover = annual COGS ÷ average inventory value; days of inventory = 365 ÷ turns.
| Turns | Days of stock | Reading |
|---|---|---|
| > 12 | < 30 | excellent (fresh grocery can exceed 50) |
| 6–12 | 30–60 | healthy e-commerce band |
| 3–6 | 60–120 | watch for slow movers |
| < 3 | > 120 | cash trapped; clearance risk |
Both directions hurt: too low strangles cash flow; too high invites stockouts and lost sales.
Equity dilution mechanics
Each round: founder% × (1 − round dilution). Option pools are carved before the round — the pool dilutes founders, not the new investor.
Example: a subscription app’s unit economics
¥30/month subscription, 75% gross margin, average lifespan 18 months; blended CAC ¥120:
- LTV = 30 × 0.75 × 18 = ¥405
- LTV/CAC = 405 ÷ 120 = 3.4 — healthy
- Payback = 120 ÷ (30 × 0.75) = 5.3 months — strong
If churn cuts lifespan to 10 months: LTV = ¥225, ratio 1.9 — suddenly fragile. Retention is the lever, not ad tweaks.
Example: founder equity after three rounds
Start 100%. Seed: 15% pool + 20% round; Series A: 18%; Series B: 15% (pool logic varies — here simplified):
- After seed pool: 100 × 0.85 = 85; after seed round: 85 × 0.80 = 68
- After A: 68 × 0.82 = 55.8
- After B: 55.8 × 0.85 = 47.4
Three rounds and the founder holds under half — board control clauses matter as much as percentage. Model every term sheet in the dilution calculator before signing.
Common mistakes
- Revenue-based LTV: LTV must use gross margin, not revenue — a ¥100 sale with ¥20 margin contributes ¥20, not ¥100.
- Blended CAC hiding channel failure: averages flatter. Break CAC by channel; one profitable channel can subsidize three money-losers for years.
- Turnover from revenue: inventory is valued at cost — use COGS in the numerator, or the ratio inflates by the markup.
- “Valuation is all that matters”: a high valuation with a 25% pool plus 25% round dilutes more than a lower headline with a 10% pool — the pool placement is the hidden term.