Definition
Unit Economics
Unit economics is the analysis of the revenue and costs associated with a single unit — typically one customer or one transaction.
Unit economics asks whether each customer or order is profitable on its own, looking at the contribution margin per unit after variable costs. The key inputs are CAC, LTV, gross margin and churn. Sound unit economics mean the business makes money on each customer once scale covers fixed costs.
Investors increasingly demand a clear path to positive unit economics rather than growth at any cost. Many high-growth startups that ignored unit economics struggled when funding tightened and the focus shifted to profitability.
Related terms
- Customer Acquisition Cost (CAC)CAC is the average cost a company incurs to acquire one new customer, including marketing and sales spend.
- Lifetime Value (LTV)LTV is the total profit a company expects to earn from a customer over the entire duration of the relationship.
- Contribution MarginContribution margin is the revenue left from a product, order or customer after subtracting the variable costs of producing and serving them, the money that goes toward covering fixed costs and profit.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.