Analyzing Unit Economics
Unit Economics refers to the direct revenues and costs associated with your particular business model, expressed on a per unit basis. A "unit" could be a single product, a customer, a subscription, or any other quantifiable item that generates revenue.
The five components of unit economics are:
Revenue Per Unit:This is how much money you earn from selling one unit of your product or service. For example, if you're selling coffee, how much do you make from one cup of coffee?
Cost Per Unit:This includes all the costs directly related to producing or delivering that unit. For the coffee example, this would be the cost of beans, water, cup, labor, etc., for one cup.
Profit Per Unit:This is calculated by subtracting the Cost Per Unit from the Revenue Per Unit. It tells you how much you earn (or lose) for every unit sold. When it's expressed as a percentage of revenue it's called gross margin.
Lifetime Gross Profit (LTGP): This is calculated by multiplying the Profit Per Unit by the average number of repeat purchases customers make. This works whether it's a subscription business or a product business - more on that later.
Customer Acquisition Cost (CAC):How much it costs to acquire a new customer.
Your business will live and die by the quality of your Unit Economics.
The Weekly Accounting system will help you see trends in your Unit Economics weekly.
If you aren't managing your business weekly,
You are managing your business weakly