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.
Related terms
CAC (customer acquisition cost)
The total cost — marketing, sales, and related effort — of winning one new paying customer.
LTV (customer lifetime value)
The total profit a business can expect to earn from one customer over the entire span of their relationship, not just their first purchase.
Gross margin
The percentage of revenue left after subtracting the direct cost of making or delivering what you sold, before any overhead is deducted.