How I love to start off pathetically)))

In a startup world where ideas are born every day and competition is incredibly high, it is critically important to understand how viable your business model is. This is where unit economics comes to the rescue - a powerful analysis tool that will help you assess the profitability of your project and make the right decisions at an early stage.

What is a unit economy? In simple words, unit economics is an analysis of the profitability of your business at the level of a single client or "unit". This "unit" can be anything:

+ one product sold, + one app user,

+ one subscription to the service.

Why does a startup need a unit economy? Unit economics helps answer key questions:

• Does your business make a profit from each client?

• How much does it cost to attract one client?

• What is the customer's lifetime value?

• How to optimize costs and increase profits?

• Is it worth investing in business scaling?

And here are the key metrics of unit economics that you will find in any analytics system and calculation formulas.

• CAC (Customer Acquisition Cost) – the cost of attracting a customer.

It includes all marketing, advertising, and sales costs necessary to attract a single customer.

• LTV (Lifetime Value) – the customer's lifetime value. It shows how much money the client will bring you for the entire time of interaction with your business.

• ARPU (Average Revenue Per User) – the average revenue per user for a certain period.

• COGS (Cost of Goods Sold) – the cost of goods or services sold.

Calculation of the unit economy

• LTV/CAC is the most important indicator that shows the ratio of the lifetime value of the client to the cost of attracting him.

• LTV/CAC < 1: the business is unprofitable.

• LTV/CAC = 3: a good indicator.

• LTV/CAC > 3: excellent indicator.

• The formula for calculating profit per customer: LTV - CAC.

Example 1: Online store Imagine that you have launched an online clothing store.

Your CAC is 1000 rubles, and your LTV is 3000 rubles.

This means LTV/CAC = 3, and your business is profitable.

Example 2: A mobile app to improve sleep

• Unit: one user of the application.

• CAC: the cost of advertising on social networks, ASO, PR campaigns.

• LTV: average duration of application usage, percentage of paying users, average subscription revenue.

• Additional metrics: Retention Rate, Churn Rate.

How to improve the unit economy?

• Optimization of CAC:

• A/B testing of advertising.

• Search for cheaper channels of attraction.

• Improve the conversion rate of the site or application.

Example: Targeted advertising for an audience interested in healthy sleep, partnership with bloggers.

• LTV increase:

• Loyalty programs.

• Additional sales (upsell).

• Cross-selling (cross-sell).

• Improving the quality of a product or service.

Example: Adding new features to the app (sleep tracks, integration with fitness trackers).

• Reduction of COGS:

• Optimization of production processes.

• Search for cheaper suppliers.

Tools for analysis

• Excel

• Google Sheets

• Specialized analytics services.

Conclusion Unit economics is an indispensable tool for any startup.

It helps you understand how viable your business model is and make the right decisions on the way to success.

Tips for startups:

• Analyze your unit economy regularly

• Experiment with different channels to attract customers. • Focus on increasing LTV

• Don't be afraid to make changes to your product or service

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