Unit economics

The revenue and costs associated with a single unit of a business, such as one customer or one order, used to judge whether each unit is profitable.

Example

An order priced at 60 with 34 of variable costs contributes 26.

Important

Growth multiplies whatever the unit economics are, good or bad.

Related terms

• Contribution margin — Revenue from a unit minus all the variable costs of producing and delivering it, available to cover fixed costs and profit.
• Customer Acquisition Cost (CAC) — The total sales and marketing spend required to win one new customer.
• Customer Lifetime Value (LTV) — The total gross profit a business expects to earn from a customer over the whole relationship.

Lessons that explain it

• Each customer must be worth more than it costs to win — Unit economics compare what a single customer or order contributes with what it costs to acquire and serve. Growth only creates value when those numbers work. (11 min)

All 578 terms in the Investing glossary