In this episode you will
- Choose the right unit for a business model
- Separate variable costs from fixed costs
- Calculate contribution per unit
Plenty of companies have grown fast while losing money on every sale, convinced that scale would fix it. Scale only multiplies what one unit already does. Before CAC, LTV or any other acronym, you need to answer a plainer question: what is the unit, and does selling one leave anything behind?
Part 1
Choosing the unit
The unit is the smallest repeatable thing the business sells. It depends on the model:
- A meal-kit company: one box delivered.
- A ride-hailing app: one trip.
- A SaaS product: one customer-month of subscription.
Pick the unit that revenue and variable costs naturally attach to. If you choose a unit that costs don't map onto, every later calculation inherits the error.
Part 2
Variable versus fixed costs
Variable costs rise with every unit sold: ingredients, packaging, shipping, payment fees, the driver's share of a fare. Fixed costs don't change with one more sale: rent, salaries of the core team, software licenses.
Unit economics deliberately looks only at variable costs. Fixed costs matter, but they are covered by the total contribution of many units. Mixing them in makes every unit look worse at small scale and better at large scale, which hides the real question.
Part 3
Contribution per unit
Contribution is what a unit leaves behind after its variable costs:
Contribution = price − variable costs per unit
Expressed as a percentage of price, it's the contribution margin. A positive contribution means each sale chips away at fixed costs. A negative one means growth digs the hole deeper, no matter how efficient marketing becomes.
One meal-kit box
A box sells for $60. Variable costs per box:
| Cost | Amount | |---|---| | Ingredients | $24.00 | | Packaging | $5.00 | | Shipping | $9.00 | | Payment fees (3%) | $1.80 | | Total | $39.80 |
Contribution = $60.00 − $39.80 = $20.20 per box, a contribution margin of about 34%.
Now test a decision: free shipping on all orders. Contribution falls by $9.00 to $11.20 per box (about 19%). To earn the same total contribution, the company would need roughly 1.8× as many boxes. That is the kind of trade-off unit economics makes visible before you commit to it.
Written by Edusodes editors.Researched and written by our editorial team.
Key takeaways
- 1The unit is the smallest repeatable thing sold, chosen so revenue and variable costs attach to it.
- 2Unit economics counts variable costs only; fixed costs are covered by total contribution.
- 3Contribution = price − variable costs per unit; as a share of price it's the contribution margin.
- 4If contribution is negative, growth makes losses bigger, not smaller.
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