Unit economics
Lesson 8 of 13 in our free Business Money Advanced guide: a 5-minute money game with the key points below.
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Questions you'll answer
Illustration: a café loyalty subscription brings in £12 a month with a 50% margin, and the average member stays 18 months. What's the lifetime value per member?
That café spends £60 on average to win each member, who brings £6 margin a month. How long until each member pays back what it cost to win them?
Quick facts
- Price of a flat white minus the beans, milk and cup → Contribution per unit. What each sale adds towards fixed costs and profit.
- Total ad spend divided by the number of new customers it brought in → Customer acquisition cost (CAC). What it costs, on average, to win one customer.
- Monthly margin per customer × months they stay → Lifetime value (LTV). The total margin a customer brings in over their 'life' with you.
- Money spent on promo codes for first orders, per new customer → Customer acquisition cost (CAC). Discounts to win customers are part of acquisition cost.
- Fact: “If lifetime value is lower than acquisition cost, growing faster loses money faster.” — Every new customer is a loss. More of them means a bigger loss.
- Myth: “Revenue growth proves a business model works.” — Revenue can grow while every sale loses money. Unit economics shows whether each customer is worth having.
- Fact: “Customers who leave sooner lower lifetime value.” — Fewer months of margin means a lower LTV, so retention matters as much as winning new customers.