_Revenue up 60%. Customer count up 50%. Team morale high. Board pleased. Dig into unit economics and the picture changes._ --- ## The growth trap Every customer acquired costs more than they'll ever generate in margin. Revenue masks value destruction — a business confusing activity with economics. It happens more often than anyone admits. Growth feels like progress, dashboards show lines going up. But if you're spending £5 to acquire £4 of lifetime value, you're not building a business. You're buying revenue with investor capital. The trap is subtle because aggregate numbers look good. Total revenue grows, customer count grows — the problem only appears when you decompose the economics at the unit level. --- ## Where the fiction hides Start with CAC. A business claiming £3,000 acquisition cost but only counting advertising is lying to itself. Real CAC includes everything it takes to acquire a customer: sales salaries, marketing spend, SDR team, tools, allocated overheads. The true number is often 2-3x the first calculation. LTV is worse. Businesses assume 95% gross retention and 110% net retention because that's what the model says — but models forecast while cohorts measure. Pull actual data: what percentage of customers from eighteen months ago still pay today? Early adopters retain better than later customers; the first hundred loved the product enough to take a risk, while customer one thousand bought because the salesperson discounted heavily. Their retention behaviour is completely different. Then there's margin. A SaaS business with 80% gross margins has completely different economics than a services business with 40%, but many companies classify services teams as sales and marketing rather than cost of revenue. The accounting is legal; the economics are obscured. Real gross margin may be twenty points lower than reported. Contribution margin — what's left after dedicated customer success, implementation costs, and platform hosting — often tells the truth that gross margin hides. A business reporting 75% gross margins might show 45% contribution margins once these costs allocate properly. --- ## The real test The question is simple: does each customer generate more margin over their lifetime than it cost to acquire them? And does the payback period work within your capital constraints? When multiple segments show LTV below CAC, you're destroying value. When payback exceeds eighteen months in your primary channel, growth is capital-constrained. When retention assumptions from forecasts don't match actual cohort data, your LTV calculation has drifted from reality. These aren't vanity metrics. Enterprise sales showing thirty-month payback while mid-market shows ten-month is a resource allocation signal — it tells you where to deploy capital and where to pull back. Start with one segment. Pull actual cohort data, not forecasts. Calculate real CAC with fully-loaded costs. If the economics don't work, stop acquiring in that segment until you understand why. The test reveals whether growth creates value or consumes capital. --- **Related:** [[Notes/Payback Over Ratios|Payback Over Ratios]] · [[Notes/Profitable And Broke|Profitable and Broke]] **See also:** [[Ideas/Scale Economies|Scale Economies]]