| name | unit-economics |
| description | Model unit economics using explicit revenue, variable cost, gross margin, acquisition, retention, expansion, service burden, and cohort assumptions so monetization decisions reflect sustainable value creation. |
Unit Economics
Use when pricing, packaging, growth, or business-model decisions depend on whether customer-level economics are sustainable.
Procedure
- Define the unit being modeled: customer, account, transaction, order, seat, workload, or another economically meaningful unit.
- Separate recurring or transaction revenue from variable costs directly driven by serving the unit, such as infrastructure, payments, support, fulfillment, or third-party usage.
- Calculate contribution or gross margin using accounting definitions appropriate to the decision and state what is excluded.
- Model acquisition cost, onboarding cost, churn or retention, expansion, discounting, refunds, and support burden by cohort when data permits.
- Estimate lifetime value only with retention assumptions that are explicit and supportable; show sensitivity rather than one heroic number.
- Compare segments and usage bands because average customers can hide structurally unprofitable heavy or low-value cohorts.
- Model how pricing or packaging changes alter usage, cost, margin, conversion, and retention rather than changing revenue in isolation.
- Reconcile model outputs against observed financial or operational data and update assumptions as cohorts mature.
Decision rules
- Define the economic unit before calculating metrics.
- Revenue growth can coexist with worsening unit economics.
- LTV is highly sensitive to retention; weak retention evidence should produce wide ranges.
- Do not label fixed overhead as variable merely to make one product look expensive.
Quality gate
The model is decision-ready when the unit and cost definitions are explicit, calculations reconcile to available data, cohort differences and major assumptions are visible, retention-sensitive metrics include ranges, and pricing or growth choices can be evaluated against margin and sustainability rather than revenue alone.
