# What is Unit Economics?

What is Unit Economics? Analyzing revenue and costs at the level of a single unit — one customer, one order.

## How it works in practice

Unit economics answers one question: 'is a single transaction with a single customer good for the business?' If yes, you can scale. If not, scaling just means a bigger loss. Understanding unit economics before scaling is the difference between growth and failure.

## Related metrics

- CAC — a primary factor in unit economics
- LTV — the other side of the equation
- Contribution Margin — profit per unit
- Break-Even — derived from unit economics

## Common misconception

'Good unit economics is enough for growth.' Transaction-level unit economics is just the first step. You also need cohort-level unit economics (does it stay positive over time?) and unit economics at scale (do costs stay in check as you grow)?

## How to fix it

Negative unit economics? (1) Identify the biggest driver — CAC? COGS? Churn? (2) Improve COGS — supplier negotiation, larger MOQ, (3) Lower CAC — organic channels, referrals, (4) Raise LTV — subscriptions, upsells, reduced churn.

## Real-world example

New D2C store: CAC $50, AOV $42, margin 35% = first-order contribution $14.7. Payback: $50/$14.7 = 3.4 orders = 10 months. With 25% monthly churn, most customers leave before payback. The problem: retention, not acquisition.

## Where to start

Calculate unit economics before spending a single dollar on advertising. Five numbers: CAC, AOV, gross margin, repeat rate, churn. If unit economics are negative, fix them before scaling. Scaling on negative unit economics just means bankruptcy faster.

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Category: Finance · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/unit-economics