Unit economics refers to the financial metrics that are used to evaluate the profitability and sustainability of a business at the individual unit or customer level. In other words, unit economics focuses on understanding the cost and revenue associated with each unit or customer of a business.
For example, in a subscription-based business, the unit economics would consider the cost of acquiring and servicing each subscriber, as well as the revenue generated from each subscriber. By understanding the unit economics, the business can make decisions about pricing, customer acquisition strategies, and resource allocation to optimize profitability and growth.
Key metrics used in unit economics include customer lifetime value (CLV), customer acquisition cost (CAC), gross margin, and contribution margin. By analyzing these metrics, businesses can evaluate the profitability of individual units or customers, as well as the overall health of the business.
Unit economics is particularly important for startups and high-growth businesses, as they often operate at a loss in the early stages of their growth. By understanding the unit economics, these businesses can identify opportunities to improve profitability and achieve sustainable growth over the long term.
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