Business Models & Unit Economics

Unit Economics

What one unit actually earns you after the costs that scale with it.

Your numbers

Price per unit60 $

Cost of goods/service per unit21 $

Other variable costs per unit (fees, shipping, support)3 $

Results

Gross profit per unit

$39

What's left after the direct cost of the unit itself

Gross margin

65%

Gross profit as a share of price

Contribution per unit

$36

What each sale actually contributes toward fixed costs and CAC

Contribution margin

60%

Contribution as a share of price — the honest margin

How it works

Gross profit per unit = price − COGS. Contribution per unit = price − COGS − other variable costs.

Unit economics answer the only question that matters before scale: does selling one more unit make you richer or poorer? Gross margin covers the direct cost of making/serving the unit. Contribution margin also subtracts the costs that scale with each sale — payment fees, shipping, per-seat infrastructure — and is what's left to pay for fixed costs and acquisition.

The classic mistake is quoting gross margin while payment processing, support, and delivery quietly eat the difference. If contribution per unit is negative, growth is just a faster way to lose money.

Worked example

You sell at $60 with $21 of direct cost: gross profit = $39 per unit, a 65% gross margin. Add $3 of payment fees and shipping per order and contribution drops to $36 — a 60% contribution margin. That $36 is the entire budget for acquiring the customer and covering rent.