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Strategy · business glossary

What is Unit economics?

By Shivam Bhandari · Reviewed 31 October 2026 · How we write

definition

The revenue and cost of a business at the level of one single unit — one customer, one order, one product — used to judge if the model actually works before scaling it.

Unit economics explained

Unit economics is the revenue and cost associated with a single unit — one product, order or customer.

formula

Contribution per unit = Price − Variable costs per unit

example

An order worth ₹500 with ₹300 product cost, ₹60 delivery and ₹40 payment and packaging fees contributes ₹100.

why it matters

If each unit loses money, growth only increases losses.

common mistake

Ignoring delivery, returns and payment costs when calculating per-order profit.

Frequently asked questions

What is Unit economics?

The revenue and cost of a business at the level of one single unit — one customer, one order, one product — used to judge if the model actually works before scaling it. Unit economics is the revenue and cost associated with a single unit — one product, order or customer.

How do you calculate Unit economics?

Contribution per unit = Price − Variable costs per unit. An order worth ₹500 with ₹300 product cost, ₹60 delivery and ₹40 payment and packaging fees contributes ₹100.

Why does Unit economics matter?

If each unit loses money, growth only increases losses.

What is a common mistake with Unit economics?

Ignoring delivery, returns and payment costs when calculating per-order profit.

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