Customers and pricing
Unit economics
The revenue and cost of one unit: one product, order or customer.
Facts checked against sources onWhat does Unit economics mean?
Unit economics looks at the revenue and costs linked to one unit of the business, such as one order, one store or one customer. For a subscription business, the key test is whether customer lifetime value is well above customer acquisition cost. If each unit loses money, growing faster makes the losses bigger.
Where does it come up in case interview prep?
- Crack any case in five movesLesson in What a case interview is, and how to prepare
- Unit economics in any businessLesson in How industries work: the toolkit
- Fixed and variable costs, operating leverage, and unit economicsLesson in Business basics for non-business learners
- The one-sentence so what, from a numberLesson in Saying so what: synthesis and communication at work
- Store economics: the numbers that decide profitLesson in Retail
- One method, many rolesLesson in The same acumen in other roles
- Product managementLesson in The same acumen in other roles
- Founders and startup operatorsLesson in The same acumen in other roles
- Unit economicsWhy reciting it fails, and what to do instead
Related terms
- CAC (customer acquisition cost)What it costs, on average, to win one new customer.
- CLV (customer lifetime value)The profit a customer is expected to bring over the whole relationship.
- ContributionWhat each sale adds after its own variable cost.
- TAM, SAM and SOMTotal market, the part you can serve, and the part you can win.
- Market shareOur sales as a share of total market sales.
- Relative market shareOur share divided by the largest competitor's share.
- Penetration rateThe share of potential customers who already use the product.
- Share of walletOur share of what one customer spends in the category.
Learn it in context
See Unit economics at work in a lesson from What a case interview is, and how to prepare, with checks as you go.
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