Frameworks, and why we do not teach them
Unit economics: what it is and what to do instead
The revenue and cost of one unit: the right maths when the unit matches the decision.
Facts checked against sources onWhat is Unit economics?
Unit economics looks at the revenue and cost of one unit, such as one order, one store or one customer. For customer businesses it often means comparing customer lifetime value (CLV) with customer acquisition cost (CAC).
Where it comes from: A general finance tool with no single author.
The idea worth keeping
Not as boxes to fill, but as questions that fall out of the maths of the goal:
- What is the unit that matches this decision?
- What does one unit earn after the costs that come with it?
- For a customer: how long do they stay, and what did it cost to win them?
- Which segment or channel is worst, and why?
Why reaching for it fails in an interview
- It is generic. "Compare CLV with CAC" can be said about any company without knowing what drives either number.
- It misses the driver that matters. The decision usually turns on one input, such as how many months a customer stays, which the headline ratio hides.
- It sounds rehearsed. Dropping the acronyms early sounds like a learned phrase unless you build the numbers from the business.
What to do instead: a worked case
A fast-growing meal kit company that loses money
A meal kit company grows revenue 50% a year but loses money. Should it keep spending on growth?
The tempting answer: CLV versus CAC, plus customers, competitors and company.
Pin the question
Decide whether each new customer makes or loses money, and what would have to change before spending more on growth.
Write the maths of the goal
- Contribution per order = order price minus food, packing and delivery cost
- Lifetime value = contribution per order x orders per month x months a customer stays
- Value of a new customer = lifetime value minus cost to acquire one customer
Use what you know about the business
- Meal kits are often bought on a first-box discount, and many customers cancel within a few months, so months stayed is the input that swings value most.
- Delivery cost per order falls as more customers order in the same area.
- Food waste is a hidden cost: unsold ingredients raise the true food cost per order.
The structure that falls out of it
- Contribution per order
- Price
- Food and waste
- Packing and delivery
- How long customers stay
- Orders per month
- Months before cancelling, by how they joined
- Cost to win a customer
- Marketing spend by channel
- First-box discount
Hypothesis: Contribution per order is probably fine; I expect customers leave too soon to repay what it cost to win them.
Find the facts that decide it
- Order price 60, food, packing and delivery 45: contribution 15 an order. Two orders a month for an average of 4 months: lifetime value = 15 x 2 x 4 = 120.
- It costs 150 to win a customer, so each new customer loses 30. If customers stayed 6 months instead of 4, lifetime value would be 15 x 2 x 6 = 180, and each new customer would earn 30.
Say so what
No, not yet: each new customer loses 30, so faster growth means bigger losses. Fix retention first, by cutting deep first-box discounts that attract short-stay customers and improving menus for the second and third months, aiming for 6 months on average. Then scale the channels whose customers stay longest. The risk is slower growth this year.
Why this beats Unit economics: The maths shows which input decides the answer (months stayed), and knowing how meal kit customers behave explains why it is low.
Build the acumen behind it
The worked case used two things a list cannot give you: the five moves, and knowing how this kind of business makes money. These pages teach both.
Learn it in context
See the idea behind Unit economics at work in a lesson from What a case interview is, and how to prepare, built from the question rather than a list.
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