What is Unit Economics and How To Calculate It?

Unit economics refers to the financial analysis of a single unit of a product or service to determine its profitability.

It’s a fundamental concept for businesses to understand the costs and revenues associated with each unit sold.

Unit economics example:

Suppose you own a coffee shop and want to launch a new flavor “Vanilla Latte”. But to assess its profitability you want to understand its unit economics, which would go as follows:

1. Revenue per unit: Let’s say you sell each Vanilla Latte for $4.50.
2. Cost per unit: The cost to produce one Vanilla Latte is $1.50. This includes the cost of coffee beans, milk, vanilla syrup, cup & lip, labor and machinery.
3. Profit per unit: Revenue per unit – Cost per unit = $4.50 – $1.50 = $3