Unit economics
What one unit of the business earns and costs, measured so that the answer to “should we sell more of this” is arithmetic rather than opinion.
Formula
Contribution per unit = Revenue per unit − Variable cost per unit − Acquisition cost per unit
- Unit
- one customer, one order or one subscription — chosen once and held
- Variable cost
- cost that exists only because the unit exists: goods, payment fees, delivery, support
- Acquisition cost
- marketing and sales spend divided by the units it produced
Rent, salaries and software do not appear. They are the fixed base the contribution has to cover, and mixing them in produces a number that changes with volume for reasons that have nothing to do with the unit.
Unit economics is not a report. It is a decision rule: if one more unit adds contribution, more volume helps; if it does not, more volume is a faster way to lose money, and every marketing improvement is spent widening a leak.
The unit has to be chosen before anything is measured, and it has to be the thing the business actually repeats. For a store that is an order; for a subscription it is a customer over their life; for a marketplace it is usually a completed transaction, counting both sides. Changing the unit halfway through is the most common way a model stops meaning anything.
- Average order value
- AED 420
- Cost of goods
- AED 231
- Payment and delivery
- AED 38
- Support and returns, averaged
- AED 24
- Acquisition cost per order
- AED 96
Contribution per order = 420 − 231 − 38 − 24 − 96 = AED 31. Positive, and thin: a 10 % rise in acquisition cost removes a third of it.
Rent, salaries and tooling get spread across units “to be conservative”, and the result is a contribution figure that improves as volume rises and worsens as it falls — which describes the accounting, not the business. Keep them out. Contribution covers fixed costs; it does not contain them.
The definitions are the easy part. Whether the figure on your dashboard was computed this way is a different question, and usually the more expensive one.