Unit Economics
The direct revenues and costs associated with a particular business unit—typically the profit or loss from acquiring and serving a single customer. The fundamental building block of business profitability.
Used in the Books
This term appears in 16 chapters:
"...ed some traction among early internet adopters. There was just one problem. Netflix was hemorrhaging cash - $57 million in losses in 2000 alone. The unit economics didn't work at small scale. They needed capital to reach critical mass. Or they needed an acquirer who understood where the industry was heading. Ha..."
"...paces that would never be profitable. The contact inhibition lesson: healthy growth requires stop mechanisms. You need sensors (market feedback, unit economics, operational capacity), pathways (reporting structures that surface bad news), and mechanisms (willingness to halt or reverse expansion)."
"...Series A (PMF achieved) | 5-8 metrics | CAC trends, LTV cohorts, feature adoption, NPS | Weekly | Days | | Series B (Scaling) | 8-12 metrics | Unit economics, cohort retention curves, market share proxies | Weekly | 1-2 weeks | | Series C+* (Market leader) | 10-15 metrics | Category growth rate, ecosyst..."
"...80% → 50%, Profitability 0% → 30%, Survival 20% → 20% - Cuts: Layoffs (1,300 employees, 15% workforce), closed warehouses, reduced marketing - Focus: Unit economics, contribution margin, path to profitability - Result: Q4 2001 = First profitable quarter ($5M profit) - Result: 2003 = First profitable year ..."
"...sale acquisition or shutdown Zero constraint (unlimited VC funding) creates waste: - WeWork: $47B valuation → bankruptcy (burned $12B, no profitable unit economics) - Theranos: $9B valuation → fraud (fake demos, no working product, unlimited capital masked failure) The discipline: Operate with 20-30% restri..."
And 11 more chapters...
Biological Context
Unit economics parallels individual energy budgets: the energy gained from food versus the energy spent acquiring it. Just as organisms need positive energy balance to survive, businesses need positive unit economics. Scale amplifies unit economics—good or bad.
Business Application
Good unit economics mean you make money on each customer; scale then brings profits. Bad unit economics mean you lose money on each customer; scale then brings faster death. Fix unit economics before scaling.