Unit Economics

Definitions

1. The revenue and cost associated with a single unit of a business, typically one customer or one order, used to judge whether growth creates or destroys value. The central comparison is customer lifetime value against customer acquisition cost, with a ratio around three to one treated as a rough benchmark for a healthy business, alongside payback period and contribution margin. Unit economics matter because aggregate growth can conceal a broken model: a company acquiring customers for more than they will ever return grows faster the more it loses, and no amount of scale fixes a negative contribution margin. Investors scrutinise them precisely because they are harder to flatter than top-line growth, though they remain sensitive to how liberally lifetime and attribution are defined.

   In plain English: Whether you make or lose money on each individual customer after accounting for the cost of getting and serving them.

   Example: "Our LTV is $2,400 and CAC is $800 — 3:1 ratio with 8-month payback. Unit economics are healthy enough to scale."

Related Terms

• ARR
• Churn Rate
• Total Addressable Market
• Burn Multiple
• Net Dollar Retention
• Pricing Page
• Internal Rate of Return
• Magic Number Startup
• Monthly Recurring Revenue
• Basis Point
• CAC Payback
• Quick Ratio
• Revenue Multiple
• Rule of 40
• SaaS Metric