Why unit economics are sexy

Weird topic, I know.

But businesses don’t survive (in the long-run) if they don’t get their unit economics on point.

If unit economics didn’t work, Netflix, gone. Apple, gone. Costco, no more.

The only reasons the businesses we love (and buy from) have stayed alive for so long is because they got the unit economics right.

So what exactly is unit economics?

Basically, it’s the entire business broken down into 1 unit of what it sells.

For example, imagine you own a company that only sells bottled water. (Not a very environment-friendly example… whatever).

If your company loses money every time it makes a bottle of water you create and sell, then your business won’t last.

If you lose $0.01 per bottle created, you’re dead.

So how do you know if your business is losing or making money on each bottle?

Well, you take everything that goes into the cost of creating and selling the bottle (in financial terms). Then you take everything you make from that sale of the bottle (in financial terms). Then, you find the number of bottles you have created and sold.

With this information, you can get the cost per bottle and the revenue per bottle.

From there, Revenue – Cost = Profit.

Therefore (revenue – cost) / bottles made = profit per bottle.

Simple!

If you get your unit economics profitable (highly profitable preferably), then you’re set to win.