Unit Economics
What does one unit of value cost to produce, deliver, and retain?
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?