Let's start with simple calculations. For example, you launch a PR campaign that costs you 50,000 rubles. The number of clients from advertising is 50 people.
To understand whether advertising is profitable, it is necessary to identify the difference between profit and expenses:
Advertising budget: 50,000 rubles.
Client arrival from PR: 50 people.
Consumer cost: 1,000 rubles.
Income from one client: 3,000 rubles.
Total income: 150,000 RUR.
Unit economy: + 2,000 rubles.
It is obvious that the income the twitter database company received from one client exceeds the costs of attracting it three times. In this case, the unit economy is in excellent condition.
Examples of Unit Economics Calculations
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Let's look at a more complex example. Let's take the main indicators from the first example, but add a number of metrics to them that will allow us to analyze the situation more deeply:
Advertising budget: 50,000 rubles.
Client arrival from PR: 50 people.
Consumer cost: 1,000 rubles.
Profit from one purchase: 3,000 RUR.
Consumer lifetime value: RUB 9,000.
How many times did a person buy during the CLC (customer life cycle): 3 times.
Expenses for product and other: 1,000 rubles.
Lifetime value of all consumers (LTV): RUB 450,000.
Total expenses for the customer life cycle (LTV): 200,000 RUR.
UNIT-economics: + 5,000 rubles.
In simple terms, having fifty clients who make a purchase three times during their cooperation with the company will bring in an income of 450,000 rubles. Even if you add to the list of expenses the costs of other advertising campaigns and other operations, the company will still make a profit.
In the examples presented, we have considered options for positive unit economics, but if revenues do not exceed costs, it can also be negative.
The Impact of Unit Economics on Business Decisions
The examples clearly show that the tool we are considering is no longer related to economic indicators, but to the ability to make the right decisions. Often, the results of unit economics tell entrepreneurs what needs to be changed in their work.
For example, Uber has reached the state it is in now precisely because of the negative results of the unit economy. The founders of the company wanted to get as many clients as possible. It turned out that they couldn’t lower their prices for services, since they were already at a minimum level. It was obvious that in order to grow the client base, they needed something that their competitors didn’t have.
The decision was made to expand the company's scope of operation. People were given the opportunity to travel outside the city and pay relatively little money for the trip. In addition, the company decided to reduce investments by providing the opportunity to make trips not to taxi drivers, but to private drivers. The enterprise could not go beyond New York and try to compete with existing companies, but it realized the company's goals and organized cheap trips so that they brought maximum profit.
In order to make a decision based on the results of unit economics, you need to ask yourself the following questions:
What can be done to achieve the goal?
How do I know if my business is profitable?
What parameters should you pay attention to in order to understand the state of your business?
What indicators should the studied metrics achieve for me to receive this kind of income?
What can be improved to earn more?
For example, the company "Vintik" has 20 clients and earns 20,000 rubles. The company wants to receive 200,000 rubles - that means it needs 100 clients. It has options:
Change your advertising campaign and get more buyers for your existing product.
Change the service and product, increasing sales revenue.
Change both the product and the advertising.
Each of the options will lead to a different level of costs and its own outcome. It is necessary to analyze them all and choose the optimal one.
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