Unit economics
Unit economics is the per-unit relationship between what it costs to acquire and serve a customer and what that customer returns over their lifetime.
The familiar formulations, CAC, LTV, payback period, gross margin per account, are outputs. What makes them trustworthy is the definitional work underneath: which costs are loaded into acquisition, what counts as a unit, how churn is modeled, and over what horizon lifetime value is truncated.
Unit economics belong to revenue design rather than to finance reporting because they constrain what can be sold profitably. A segment whose payback exceeds the company’s cash horizon is not a segment the go-to-market system should be allowed to enter, regardless of how attractive its pipeline looks.
Where it breaks
LTV is computed with an optimistic churn assumption and an untruncated horizon, producing a ratio that justifies acquisition spend the cash position cannot support.
Related terms
- Pricing logic
- Pricing logic is the governing rule set that determines what any given customer pays, as distinct from a price list, which is only its output.
- Net revenue retention (NRR)
- NRR is ending recurring contracted value for a starting cohort divided by that cohort’s starting recurring contracted value, after churn, contraction, and expansion and excluding new customers.
- Revenue architecture
- Revenue architecture is the structural definition of how a company produces revenue: what it sells, to whom, under what constraints, and through which economic logic.
- Cost to serve
- Cost to serve is the fully attributed cost of delivering and supporting a specific customer or segment, as opposed to an average cost spread evenly across the base.
Field notes on this
- Your pricing is a list, not a logic
A price list says what things cost today. It cannot say what to charge the deal in front of you, which is why realised price drifts and nobody owns the drift.