Unit Economics

Unit Economics tells you how Profitable is your business for every unit of product or service sold. For example, the unit of a Subscription business is a subscriber. Hence, the unit economics is LTV minus Customer Acquisition Cost and Cost Of Goods Sold.

Why it matters: It helps you do break-even analysis, i.e., if you invest a lumps-sum amount now, then after how much time and units sold will you start earning a profit.

The details: When calculating unit economics, don’t include the cost of capital expenditure like furniture, land, R&D costs, etc. These costs need to be spread out (Amortization) across your units.