Unit economics: does ONE transaction actually make money?
Before any acronym like LTV or CAC, ask the simpler question: strip away scale entirely, and does a single order, ride, or subscriber turn a profit on its own?
A "unit" is the smallest repeatable transaction in a business: one order, one ride, one subscriber. Unit economics asks the simplest possible question about a business: forget the whole company for a second: does one of these transactions make money, or lose it?
🎯 Explain Like I'm Hired Unit economics zooms all the way into just one customer transaction, ignoring company-wide costs like the office lease, and asks: does this single transaction make or lose money? If a single unit already loses money, scaling it up doesn't fix that. It just makes the losses bigger. Example: a quick-commerce order that costs ₹150 to fulfill (picking, packing, delivery) against a ₹120 order value is losing money on every single order. The more orders the company does, the bigger the total loss gets, no matter how efficient the operations become.
Unit revenue − Unit variable costs = Contribution margin
Variable costs scale with each unit: delivery cost per order, a payment processing fee, the cost of the goods themselves. Fixed costs (salaries, office rent) don't belong in this per-unit number. They get paid for out of the total contribution margin across many units, not any single one.
Sign up to keep reading
Sign up free to unlock the worked examples, edge cases, and interview traps below.