Discussions of unit economics sometimes get sidetracked by formulas and business jargon. But you shouldn’t need a special course just to get a handle on this critical concept. Unit economics can actually be easy and even intuitive.
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What unit economics is
Unit economics answers the question “Do you profit from your user (unit)?” So you calculate:
- How much you spent to acquire that user.
- How much you made from that user.
There’s all you truly need to understand unit economics, in just 30 words!
For most online businesses, “user” will be the relevant unit. But other units are possible, too.
For example, Uber might use “ride” as its unit of analysis. In that context, unit economics shows whether or not we (as Uber) make money from a specific ride.
The approach for calculating unit economics remains the same: you calculate how much money you spent to provide that ride, and how much money you made from it.
To keep things simple in our examples here, we will keep “user” as our unit of interest.
