Unit Economics
The direct revenues and costs associated with a single unit of your business — typically one customer.
Definition
Unit economics measures the profitability of a single customer or transaction, isolating direct revenues and costs from fixed overhead. The core metrics are CAC (cost to acquire the unit) and LTV (revenue the unit generates over its lifetime). Healthy unit economics — LTV:CAC above 3:1 — is a prerequisite for sustainable scaling. Without it, growing faster only accelerates losses.
Why It Matters
Unit economics is the foundation of scalable business models. A company with strong unit economics improves profitability with scale; one with poor unit economics gets less profitable as it grows. Investors scrutinize unit economics to determine if growth is worth funding.