Revenue is growing. Clients are coming in. The team is busy. But at the end of the month, there’s barely anything left in the bank.
Sound familiar? The problem is almost always unit economics — or rather, the lack of understanding of it.
Unit economics is the single most important number in your business. It tells you whether each transaction, client, or project actually makes money — or quietly drains it.
What Are Unit Economics?
Unit economics is the revenue and cost associated with a single “unit” of your business. That unit could be:
- One customer
- One project
- One product sold
- One subscription
- One delivery
The formula is simple:
Revenue per unit – Cost per unit = Profit per unit
If the number is positive, your business model works. If it’s negative, you’re losing money on every sale — and growing faster just means losing money faster.
Why Most Founders Get Unit Economics Wrong
The most common mistake is only counting direct costs.
A founder might say: “I sell this service for €10,000 and the team costs me €6,000. That’s 40% margin.”
But they’re forgetting:
- Sales commission or cost of acquisition
- Project management time
- Tools and software used for delivery
- Revisions, scope creep, and overruns
- Customer support after delivery
- Overhead allocation (office, admin, accounting)
When you add all real costs, that “40% margin” often drops to 10% — or even negative.
How to Calculate Unit Economics
Step 1: Define Your Unit
What is one “unit” of revenue in your business? For a consulting firm, it’s one project. For SaaS, it’s one subscriber. For e-commerce, it’s one order.
Step 2: Calculate Revenue Per Unit
Average revenue you receive per unit. Include all revenue — base fee, add-ons, upsells.
Step 3: Calculate ALL Costs Per Unit
This is where most people fail. Include:
- Direct costs: labor, materials, third-party services
- Delivery costs: tools, software, shipping
- Acquisition cost: marketing spend ÷ number of clients
- Overhead allocation: rent, admin, insurance ÷ number of units
Step 4: Calculate Contribution Margin
Contribution margin = Revenue per unit – Variable costs per unit
This tells you how much each unit contributes to covering your fixed costs and generating profit.
Unit Economics Benchmarks
| Metric | Healthy | Warning | Danger |
|---|---|---|---|
| Gross margin per unit | >50% | 30-50% | <30% |
| LTV:CAC ratio | >3:1 | 1-3:1 | <1:1 |
| Payback period | <6 months | 6-12 months | >12 months |
Real Example: The €5M Company Losing Money on Its Biggest Client
We worked with a services company doing €5M in revenue. Their biggest client accounted for 30% of revenue — €1.5M.
On paper, the gross margin was 35%. The founder was happy.
But when we calculated the real unit economics:
- The client demanded constant revisions (+15% extra time)
- Payment terms were net-90 (cash was locked for 3 months)
- A dedicated project manager spent 60% of time on this client
- The team worked overtime, but overtime wasn’t tracked
Real margin: 8%. The company’s smallest clients, at €50K each, had 45% margins. The “biggest win” was actually the biggest drag.
What to Do With Your Unit Economics
- Price with confidence. When you know your real costs, you can set prices that guarantee profit.
- Fire unprofitable clients. Not all revenue is good revenue. Some clients cost you money.
- Optimize delivery. Track where time and money actually go. Cut waste.
- Scale what works. Double down on units with the best margins.
- Model growth. Unit economics tells you exactly how much revenue you need to cover fixed costs and reach profitability targets.
How We Help
At John Galt Finance, unit economics analysis is one of the first things we do with every client. In most cases, we uncover margin leaks within the first two weeks.
We build a simple, clear profitability dashboard that shows you exactly which clients, products, and services make money — and which ones don’t.
Book a free consultation and we’ll show you your real unit economics.