Unit economics
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 ratios a decision is taken on. They inherit every error below them, which is why they are the last thing to trust and the first thing quoted.
Cannot be computed without
- AOV
- Revenue divided by the number of orders that produced it — the simplest lever on unit economics and the most volatile.
- Contribution margin
- What is left of a sale after every cost that exists only because the sale happened.
- CAC
- Everything spent to acquire customers in a period, divided by the number of customers that spending actually produced.
A definition proves nothing. These are the places on this site where this quantity was actually computed, with the period and whose figure it is stated beside each one.
$230 all-in to place one engineer, training included, across the whole cohort — against roughly $3,000 by the conventional route, which is our estimate of the prior cost rather than an instrumented baseline.
$230 to place an engineer, not $3,000 · 31 July 2025 · our measurement
A definition is free. Being answerable for the figure it produces is the part that is bought, and this term is a working part of the engagements below.
- Taking a product into a new market
- A campaign can only sell what the market is allowed to buy.
- Strategy and market research
- State the assumption that would change the answer, then go and test that.
- Private consulting
- Advice you cannot act on without us is not advice.
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.