In plain words
Unit economics is the profit and loss of a single unit of whatever a business sells. In ecommerce the unit is usually one order, and for a subscription, one customer over the orders they stay for.
The point is to see whether selling one more is worth it before fixed costs come in. If one order loses money after its own costs, selling more of them loses more. If it earns, the open question is whether it earns enough to cover what it cost to win the customer.
Formula
- Per order: contribution margin = revenue − every cost of the order
- Per customer: lifetime value − customer acquisition cost
Worked example
One $40.00 bag keeps $15.36. Put a second bag at full price in the same parcel and the order brings in $80.00 and keeps $40.00 of it.
The second bag alone added $24.64, far more than the first earned, because it pays for its own cost, one extra pick and its share of fees, and nothing else. The label and the base fee were already paid.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
Unit economics is not the average of the income statement
Dividing last month's total costs by its orders mixes fixed costs into each order and hides which costs move with a sale. Unit economics counts only what one more order changes. That is what an offer decision needs.
Using it
Start with the first unit in the box, then ask what each further unit adds. The gap between the two is the room a bundle discount has. For a subscription, do the same with orders: what the first order keeps, what each renewal adds, and how many renewals a subscriber stays for.