Unit Economics Deep Dive
8 concepts · ~30 min · Advanced
Go beyond the basics: master cohort analysis, expansion revenue, and contribution margin — the advanced metrics that separate surviving startups from thriving ones.
What You'll Learn
- ✓Build cohort retention tables and identify deteriorating acquisition quality before it shows up in blended metrics
- ✓Calculate your expansion rate and design pricing architecture that enables automatic revenue growth from existing customers
- ✓Compute contribution margin by product line and customer segment to find hidden profitability leaks
- ✓Use cohort-level revenue analysis to separate genuine NRR improvement from data artifacts
- ✓Build a unit economics dashboard that tracks all 8 metrics in real time
Unit Economics
Unit Economics
💡 The Concept
Unit economics is the direct revenue and costs associated with a single 'unit' of your business model (usually one customer). If your unit economics are positive, every new customer generates profit. If negative, every new customer accelerates your death. The core calculation: Unit Profit = (LTV × Gross Margin) − CAC. If LTV is $2,000, gross margin is 80%, and CAC is $1,200, unit profit is ($2,000 × 0.80) − $1,200 = $400 per customer. This means each customer eventually contributes $400 toward covering fixed costs and generating profit.
⚠️ The Trap
Founders often achieve 'positive unit economics' by excluding fixed costs entirely or misclassifying variable costs. True unit economics must include a fair allocation of all variable costs. The second trap: assuming unit economics stay constant as you scale. They can improve (economies of scale in hosting, support) or worsen (higher CAC from market saturation, more support tickets from less-sophisticated users). Track unit economics by cohort and by scale.
🎯 The Action
Calculate profit per unit: (LTV × Gross Margin) − CAC. If this number is negative, do NOT scale. Fix your pricing, reduce CAC, or improve retention first. Scaling negative unit economics is like pouring gasoline on a fire — you burn faster. Once positive, track the 'contribution margin ratio': Unit Profit ÷ Revenue per Customer. This tells you what percentage of each revenue dollar covers fixed costs.
Knowledge Check
Your LTV is $1,000, gross margin is 70%, and CAC is $800. Should you scale your marketing spend?