Unit Economics



Growth or cash burn, low margins, mismatch of payment times, or unpredictable customer churn are some use cases that affect Cash. Unit economics helps your team quickly to figure out the health of your profitability and money flow and also, what need to do to improve it.


What is unit economics?

Unit economics tells cash in and cash out of a single unit. Unit economics tells how much euros or dollars each unit generates for the business. For a last-mile delivery business, a unit is one ride in the vehicle, and for a rental business, a unit is the value of one rental agreement. These units are then analyzed to see how much they generate cash in or cash out, which can be either profit or loss.

Compared to the traditional accounting reports the key advantage of the unit economic is the accuracy. The data using unit economics analysis can be used for the short and long-term decision-making about your money flow.

Use unit economics to

Assess scalability of the business model Premature scaling is, perhaps, the number one definable cause of a startup's death. The faster the business decides to grow, the worse the losses become. Founders rely heavily on unit economics to assess the scalability of the business model. Analyze margins, pricing, and profitability Using KPIs based on unit economics can help you know how profitable your business is (or when it is expected to achieve profitability) since it produces a simple, granular picture of your company’s profitability on a per-unit basis.

Boost retention by analyzing churn Unit economics combined with customer behavior can identify favorable strategies for churn and customer retention. Unit economics can identify a slowing frequency in customer purchases, which can be a signal about the churn and turning to the competitor.

Quick & Dirty: How to analyze unit economics?

There are two ways to approach calculating unit economics Approach 1. A unit as One Sold Unit Use unit economics by calculating the margin, which is the revenue from one sale minus the spendings associated with that sale. Margin = price per unit – spendings per sold unit Approach 2. A unit as One Customer Use unit economics by a ratio of

  • Customer lifetime value (LTV): How much money do you get from a given customer before the customer churns

  • Customer acquisition cost (CAC): Spendings acquiring that customer


How to use unit economics?

Spendings by themselves are not scary. Spendings are scary when you scale the business up and the money flow or business model doesn't look any better. Spendings are also scary when the cash position doesn’t look good to cover your future spendings even if the unit economics look great.



Assess business scalability and how a customer buys

Customer lifetime value compared to the acquisition costs tells the wealth of your business

Premature scaling is, perhaps, the number one definable cause of a startup's death. The faster the business decides to grow, the worse the losses become. Founders rely heavily on unit economics to assess the scalability of the business model. Understanding and predicting topline and customer behavior are one of the most important questions about the business model: how often a single customer buys and how much in euros the customer spends. Another side of this is, that how much it takes to acquire and keep the customer. Unit economics gives you an answer about the total customer lifetime value, which compared to the customer acquisition costs tells the wealth of your business model and money flow. Can I make more money during the customer's lifetime than our costs are to acquire a customer?

Analyze the margins, pricing, and profitability

ARPU for both customers and suppliers tells the wealth of your business model Using KPIs based on unit economics can help you know how profitable your business is (or when it is expected to achieve profitability) since it produces a simple, granular picture of your company’s profitability on a per-unit basis. It can analyze average revenue per user account (ARPU) for both sales and purchases getting more evidence about pricing to the identified customer segment.

Unit economics gives you an answer about the ARPU for customers which compared to the ARPU for suppliers tells the wealth of your business model and money flow. Are our margins priced well to cover our costs to produce a product or service?

Boost retention by analyzing churn

Identify those customer profiles who are becoming passive Unit economics combined with customer behavior can identify favorable strategies for product pricing optimization. Customers, who are recently and frequently engaged with your products will possibly buy again. Unit economics can identify a slowing frequency in customer purchases, which can be a signal about the churn and turning to the competitor. Combining it with machine learning, you can be aware of the hidden change in customer purchases and use it in sales trend analysis. What are the similarities in churned customer profiles?

The good news is that when you’re aware of this we can avoid the trap. Using accurate insights it's easy to analyze and fix the business models.

riskrate works in sync with tools you already use and analyzes a wealth of unit economics, using over 80 000 companies' business data, millions of invoices, and superior machine learning models to deliver accurate insights on your money flow. Sign up in 8 min - instantly get actionable insights about your money flow.