How to understand unit economics?
If you are getting acquainted with unit economics for the first time, then congratulations on the opening!
What is the unit economy and why is it needed:
Unit economics is an economic modeling method used to determine the profitability of a business model by assessing the profitability of a unit of goods or one customer.
Typically used to evaluate the profitability of a startup business idea.
A business can only be successful if a single unit of product or service is profitable.
source: “Unit Economy: A History of Origin”
In simple words.
The unit economy is the difference between the receipt of money from a client / product and the company’s expenses for attracting this client.
We launched an advertisement, investing UAH 100,000 in it, and got 100 clients. Now we need to figure it out: is this a good result ?! To do this, we need to calculate the difference between the profit and the cost of attracting a client.
More detailed example:
We add additional deeper indicators that will make the result more detailed.
In the examples above, I’ve shown a positive unit economy. But everything can also be negative. So get yourself together, sit down and count, for each product!
When I started studying the topic, I decided that unit economics is just a few indicators.
But I was wrong, later I discovered a list of the main indicators. Сhoose what is important for your niche below
List of main indicators
☝ You can also download yourself a Unit Economics cheat sheet (from binarydistrict.com) that clearly shows the relationship between metrics through formulas.
📍Here is a cheat sheet
To wrap up, some helpful advices from me and the team:
✔ Simplify the ways of reordering – read the funnel from the bottom up from the most motivated customer to the general one as you need to work with him;
✔ increase the frequency of product use;
✔ launch additional services, creating additional value;
✔ raise prices.
Finally, I would like to add that it is quite possible the matter is not in numbers but in the product itself or the packaging of the business!
Friends, take 15 minutes to establish baselines. Work with this article, the result will delight you!
All goodness and a productive weekend!
Best regards, Konstantin and Soloviov ®™ marketing agency team.