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Unit Economics

Does the fundamental math work at the transaction level?

Mantra

If the unit economics don't work at 10 customers, they won't work at 10,000

Perceive: What Is Unit Economics?​

The direct revenues and costs associated with a single unit of your business model—whether that's a customer, a transaction, or a product sold. Unit economics answers the fundamental question: does this business make money on each transaction?

Core Metrics​

MetricQuestion
Customer Acquisition Cost (CAC)How much does it cost to acquire one customer?
Lifetime Value (LTV)How much revenue will a customer generate over their relationship?
Contribution MarginWhat's left after variable costs per unit?
Payback PeriodHow long until a customer becomes profitable?
LTV:CAC RatioIs the value created worth the cost of acquisition?

The Magic Ratio​

A healthy business typically has LTV:CAC of 3:1 or better. Below 1:1 means you're paying more to acquire customers than they're worth.

Question: Why Does Unit Economics Matter?​

Scale amplifies whatever already exists. If each transaction loses money, growth accelerates losses. If each transaction is profitable, growth compounds value.

Before You Scale​

Many businesses fail because they scale before validating unit economics:

  • Subsidized growth: Using VC money to acquire customers below cost hoping economics improve later
  • Hidden costs: Not accounting for support, returns, or churn in per-unit calculations
  • Optimistic projections: Assuming future efficiency improvements that never materialize

The Brutal Truth​

You cannot optimize your way to profitability if the fundamental unit doesn't work. No amount of operational excellence fixes broken economics.

Act: How to Apply Unit Economics​

1. Define Your Unit​

What is the atomic transaction in your business?

  • SaaS: Monthly subscription per customer
  • E-commerce: Single order/product sale
  • Marketplace: Transaction between buyer and seller
  • Crypto/DeFi: Protocol fee per transaction

2. Calculate True Costs​

Include all variable costs attributable to that unit:

  • Cost of goods/services
  • Payment processing fees
  • Customer support allocation
  • Infrastructure costs (compute, storage)
  • Onboarding and activation costs

3. Validate Before Scaling​

Run experiments at small scale to prove economics work:

  • Can you acquire customers profitably?
  • Do customers retain long enough to cover acquisition cost?
  • Does contribution margin cover fixed costs at target scale?

4. Monitor Continuously​

Unit economics change over time:

  • New competitors compress margins
  • Channel saturation increases CAC
  • Product maturity affects LTV

Checklist​

  • Have you defined your unit of measurement?
  • Are all variable costs accounted for?
  • What is your LTV:CAC ratio?
  • How long is your payback period?
  • At what scale do you break even on fixed costs?

Context​