Unit Economics
What does one unit of value cost to produce, deliver, and retain?
Unit economics is the smallest cashflow story a venture can tell. If one unit will not profit, no rhetoric saves it. If one unit profits, every persuasion asset downstream has something real to carry.
Business Alignment
Before filling numbers, anchor to reality.
| Question | Answer |
|---|---|
| What is the unit? (customer, seat, project, subscription) | [define] |
| What's the time horizon for payback? | [months] |
| What conviction level are these numbers? | HIGH / MEDIUM / LOW / NONE |
| What would make these numbers wrong? | [assumption to test] |
Revenue Per Unit
| Metric | Value | Assumption | Conviction |
|---|---|---|---|
| Price per unit | $[X] | [why this price] | |
| Units per customer per year | [X] | [usage pattern] | |
| Annual revenue per customer | $[X] | [price × units] | |
| Revenue growth rate (monthly) | [X]% | [based on what] |
Cost Per Unit
| Metric | Value | Assumption | Conviction |
|---|---|---|---|
| Direct cost per unit (COGS) | $[X] | [what's included] | |
| Delivery cost per unit | $[X] | [time, tools, infrastructure] | |
| Support cost per unit (monthly) | $[X] | [hours × rate] | |
| Total cost per unit | $[X] | [sum above] |
Contribution Margin
| Metric | Value | Formula |
|---|---|---|
| Revenue per unit | $[X] | |
| Cost per unit | $[X] | |
| Contribution margin ($) | $[X] | Revenue - Cost |
| Contribution margin (%) | [X]% | Margin / Revenue |
Margin below 50% = volume game. Margin above 70% = pricing power. Between = depends on CAC.
Customer Acquisition
| Metric | Value | Assumption | Conviction |
|---|---|---|---|
| Customer acquisition cost (CAC) | $[X] | [channels, spend] | |
| Organic acquisition % | [X]% | [berley trail vs paid] | |
| Sales cycle length | [X] days | [first touch to close] | |
| Conversion rate (lead → customer) | [X]% | [based on what] |
Lifetime Value
| Metric | Value | Formula | Conviction |
|---|---|---|---|
| Average customer lifespan | [X] months | [churn assumption] | |
| Monthly churn rate | [X]% | [based on what] | |
| Lifetime value (LTV) | $[X] | ARPU × lifespan | |
| LTV:CAC ratio | [X]:1 | LTV / CAC | |
| Payback period | [X] months | CAC / monthly margin |
LTV:CAC below 3:1 = acquisition too expensive or retention too low. Justify or fix.
Sentence Test
State these numbers in one sentence. If you can't, the model isn't clear enough.
"Each [unit] costs $[X] to acquire, generates $[X]/month at [X]% margin, pays back in [X] months, and retains for [X] months — giving us [X]:1 LTV:CAC."
If you can't fill that sentence, go back and find the gaps.
Questions
Which assumption, if wrong by 2x, would kill the business — and how would you detect it early?
- Is CAC based on evidence or hope?
- What's the churn rate based on — data, comparables, or a guess?
- If organic acquisition is >50%, what happens when it stops working?