Unit economics
Training 1065 minutesunit economics
You are 26 and run a coffee cart by an office tower. A unit is one sale or one customer. If one unit loses money, growth only speeds up the losses.
Training goal: Make sure every cup makes money
▶ Play this trainingSituation
1. A cappuccino sells for $3.50. Beans, milk and a cup cost $1.10. Your spot rents for $600 a month.
- Work out the margin: $2.40 a cup
- Assume the $3.50 is all yours
- Drop to $2 to beat the competition
2. Social media ads: $300 a month brings 60 new customers.
- Celebrate: 60 customers!
- Double the ad budget right away
- Work out the cost: $5 per customer
3. A regular buys coffee 3 times a week and sticks around for about 4 months.
- Work out margin per customer: about $125
- Count only the first purchase
- Give every regular 50% off
4. A supplier offers pastries: sell at $3, buy at $2.20, but a third goes unsold each day.
- Take them: more products, more money
- Count the waste, pass on these terms
- Take them and cut the price to sell out
What you will learn
- Margin is price minus variable cost per unit.
- When CAC is below the average LTV of all new customers, ads pay off.
- Count waste and discounts, or a unit quietly turns negative.
Your real-life step
Take one product or service you sell and work out the price, unit cost and margin. How many sales cover your fixed costs?
Questions and answers
What is unit economics?
Working out profit per sale or per customer. It shows whether the business earns or loses money on each unit.
What are CAC and LTV?
CAC is what it costs to win a customer. LTV is the margin they bring over time. A healthy guide is LTV at least 3 times CAC.
How do I calculate break-even?
Divide fixed costs by unit margin. $600 rent at a $2.40 margin means 250 sales a month.
More trainings in this module
- The road to freedom
- Retirement savings
- Your freedom number
- The 4% rule
- Starting a business
- Teaching kids about money
Numbers are illustrative. A game, not financial advice.