Unit Economics are the revenues and costs of a business expressed per fundamental unit of work (a customer, an order, a product line, a campus) rather than in aggregate.
Looking at a business through its units shows whether each additional unit makes or loses money. Common measures include 📝Customer Acquisition Cost (CAC), the lifetime value of a customer (LTV) and its gross-profit version, lifetime gross profit (LTGP), the cost to develop a new product line, the cost to open a new location such as a campus, revenue per square foot, and labor margin.
A business has positive unit economics when it can earn back what it spends to acquire a customer soon after acquiring them. The ratio of what a customer is worth to what they cost to win is captured in 📝LTV:CAC. Averages can hide the truth, though. The 📝Magic Cohort, the best-performing slice of customers, can look profitable on its own while the business as a whole is not.
Unit economics are a core input to an 📝Integrated Financial Model (IFM), and to the weekly metrics a team reviews in 📝Monday Morning Metrics (MMM).
I'm drawn to companies with a Big Vision and positive unit economics. Either one alone isn't enough. Together, they can change the world.