Unit economics

Unit economics strips a business down to its smallest replicable unit — usually one customer, one transaction, or one trip — and asks whether that unit makes or loses money. If the economics at the unit level are healthy, the business can theoretically scale profitably. If the unit loses money, scaling simply amplifies losses and creates a structurally broken model.

For subscription and SaaS businesses, the two primary unit economics metrics are CAC (cost to acquire one customer) and LTV (gross profit earned over that customer's lifetime). Their ratio — LTV/CAC — is the canonical unit-economics benchmark. A ratio above 3:1 with a payback period under 12–18 months indicates a business that can deploy capital into growth and expect a healthy return.

For transactional or marketplace businesses, unit economics are expressed differently: contribution margin per transaction (revenue from one order or one booking minus all direct variable costs) is the atomic unit. If a delivery startup earns ₹250 in fees from one order but incurs ₹300 in direct fulfilment costs, each transaction destroys ₹50. No amount of scale can fix negative per-transaction economics without a structural change to pricing or costs.

Investors scrutinise unit economics at every stage after pre-seed. Founders should be able to walk an investor through the unit from first-touch to revenue to gross profit to payback — with real cohort data where possible, and with clearly stated assumptions where data is thin. The ability to articulate honest unit economics signals financial rigour and investor readiness.