Unit economics
Unit economics is the profit and loss of a single unit of the business - one order, one customer or one SKU - built by subtracting the variable costs that unit carries from the revenue it brings in. Ecommerce operators use it to judge whether the next order, campaign or customer adds profit before overheads.
| Rung | What it answers |
|---|---|
| CM1 = revenue − landed COGS | Can the product itself carry cost? A sourcing and pricing decision. |
| CM2 = CM1 − fulfilment, shipping & payment fees | Can the operation deliver it? An operations decision. |
| CM3 = CM2 − variable marketing | Can you acquire profitably? The marketing decision. |
Worked example
Example numbers - the same A$120 order walked through on The Math. This order contributes A$27.60 towards fixed costs and profit.
What does good unit economics look like?
There is no single benchmark, because healthy depends on your margin structure and category. The honest tests are directional: CM3 is positive, so the marginal order adds money rather than losing it; the step-down bleeds where you expect it to (a heavy product loses more at CM2, an acquisition-led brand at CM3); and total contribution covers fixed costs at a volume you can actually reach. When a rung breaks, the rung names the decision to revisit - sourcing and pricing at CM1, operations at CM2, acquisition at CM3. The free tools library has a calculator for every step of this math.
Unit economics vs related metrics
| Metric | What it measures | How it differs from unit economics |
|---|---|---|
| Contribution margin | Revenue minus variable costs. | The number at the heart of it - unit economics is the practice of computing it per order, customer and SKU. |
| Gross margin | Revenue minus COGS only. | Stops at the first rung (CM1); unit economics keeps going through fulfilment, fees and marketing. |
| Net margin | Profit after all costs, fixed included. | A whole-business, per-period figure; unit economics deliberately excludes fixed costs to isolate the marginal sale. |
| Customer lifetime value (LTV) | Contribution a customer generates over their lifetime. | Unit economics at the customer grain, extended over time - LTV is built on contribution margin, not revenue. |
Common mistakes
- Averaging across the store. Blended unit economics hides the SKUs, orders and cohorts that lose money - the grain is the point.
- Stopping at gross margin. CM1 ignores fulfilment, shipping, payment fees and marketing - the costs that decide whether the sale was worth making.
- Baking fixed costs into the unit. Rent per order changes every month with volume; it answers a different question to the marginal one.
- Judging units on revenue metrics. AOV and ROAS say nothing about what the order kept - two identical revenue numbers can hide opposite unit economics.
- Coalescing missing costs to zero. A gap shown as a gap is honest; a fabricated zero flatters every unit it touches.
Unit economics FAQ
Related
Blufire S2 Unit Economics runs this step-down live on every order, customer and SKU - the Profitability Cube for the grain, the CM waterfall & bridge for the story. The Math teaches the full method free.
Updated July 2026