Concept and applicability of unit economics calculation

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Unit economics is a calculation method that allows you to analyze the profitability of a basic unit in a business. This means a service, a product, or a transaction. Unit economics data allows you to evaluate the dynamics of a business and help make a decision about either expanding it, closing it, or changing its management strategies. The main goal is to reduce losses. The indicator is the discrepancy found between the investment and the income received.

Concept and applicability of unit physicians email list economics calculation

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When you have information about how much each unit is bringing in, as well as how much you are investing in it, you can make important business decisions. Here is an example:

How much money will it take to attract one client?

How many deals, clients or sales do you need to make to make a profit?

How to set a price for a service or product so that it covers all the costs of its production.

Is the launched advertising campaign profitable?

Does the business have the resources for further development?

Unit economics is suitable for different industries and companies of any size. This method of calculation is basic in the work of marketers, managers and entrepreneurs.

When unit economics are truly effective:

When starting a new business . Unit economics will help calculate and evaluate the profitability of a startup, taking into account the profitability of an investment project. Using this tool, you will find out the boundaries of the product cost. This will help you identify the lowest price for it to compensate for the costs of its production.

When expanding a business . Unit economics will help you see whether there is potential for scaling the business. If the unit is negative, then expansion will lead to an increase in the amount of losses.

When launching an advertising campaign . Preliminarily evaluate the start of the advertising campaign by calculating the cost of a unit and the costs of attracting it. Determine the profitability of sales channels and the minimum number of units to achieve profitability.

When interacting with customers and assessing the revenue from each . Using unit economics, you will determine the lifetime value of a customer (LTV) and plan ways to increase it.

When attracting investors . If the number of units grows by 5-20%, you can predict a profit. With an accurate calculation of the potential profit from the project, there is a high probability of attracting financial support and influence from outside.