Why do they keep asking for 'Unit Economics'?

'Business is about profit'. Sounds weird right... Especially in this era of scale and growth and volumes, no one thinks of profit. Then why am I saying this?

Yes, business is about profit in the long term. We can start off with no intention for earning profit in the early part of the business. We can look to invest, scale and grow and all our emphasis can and should be on that. However, to sustain the business, profit will need to start flowing in gradually. To estimate what that profit can be, unit economics becomes of prime importance. Unit Economics tells you the exact revenue, expenses per unit of sale. These economics can be estimated using future figures (eg. once we do 20,000 transactions a month, our courier charges would come down to Rs. 20 per kg), but they help us ascertain what we could earn going into the future, thereby giving us a direction and fair estimate of what the business can generate.

These economics can be for the operations of a business and also for customer acquisition. The numbers for operations can help us ascertain the business profitability. The ones for marketing acquisition can help us ascertain how much money we are spending to acquire new customers vis a vis the amount we are earning from that customer (this obviously has to be positive to generate value for the business).

Hence it is very important for an entrepreneur to come up with these figures and to use them in the business plan.

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