Unit Economics
Unit economics focuses on calculating the profitability of a single business unit, such as a customer, order, or deal. This method shows how much money an individual customer, sale, subscription, and so on generates.
How to Calculate Unit Economics
First, calculate the margin per customer or order by subtracting direct variable costs from revenue, including cost of goods sold, commissions, delivery, and taxes on turnover. Then compare the resulting amount with the customer acquisition cost (CAC). If CAC exceeds the margin, customer acquisition does not pay off. For businesses with repeat sales, customer lifetime value (LTV) and the LTV-to-CAC ratio are also calculated.
For example, if an order generates a margin of 5,000 rubles and acquiring the customer costs 3,000 rubles, the unit is profitable. If the costs of this sales channel rise to 5,500 rubles, sales will become unprofitable.
Many companies consider an LTV-to-CAC ratio above 3 a good benchmark: over the entire relationship, a customer generates three times more revenue than it costs to acquire them. The CAC payback period shows how long it takes for the profit generated by a customer to cover the cost of acquiring them.