Unit economics
What one customer costs to win and earns you afterwards — the smallest unit at which a business is either working or not.
Unit economics is the profit and loss of a single customer: what it costs to acquire one, what it costs to serve one, and what one pays you over their life. Get the unit right and scale multiplies it. Get it wrong and scale multiplies that instead.
It is the discipline that separates a business from a busy one. Total revenue can rise for a year while every individual sale loses money, and it will keep rising until the funding stops, because volume hides the arithmetic. The single most useful thing you can do with the number is refuse to spend on growth until it is positive — most of what looks like a marketing problem is a unit-economics problem being solved with more traffic.
The usual mistake is defining the unit too generously. Include payment fees, support hours, refunds and the free trial that never converted. If you cannot name every cost that attaches to one customer, you do not yet have the number, you have an estimate that flatters you.
Worked: $70 to acquire, $12 a month of gross profit per subscriber, average life of 14 months. Lifetime gross profit is $168 against $70 of cost — a ratio of 2.4 and a payback in six months. Push acquisition cost to $130 chasing growth and the ratio falls to 1.3, which no amount of volume repairs.
Also known as
- per-customer economics
Relevant for
- Founders
- Do not spend a dollar on growth until one customer is profitable on their own — scale is a multiplier, and it has no opinion about the sign.
- Creators
- Count the free subscribers, the refunds and the platform's cut before you decide the product works; the arithmetic of one buyer is the whole business.