workflow-pe-unit-economics

# PE Unit Economics ## What this skill covers Decomposition of business profitability at the per-unit level. Covers all business models: transactional, subscription/SaaS, retail/consumer, B2B services, and industrials. The unit is defined by the business model; the framework adapts to each. ## Workflow ### Step 1 — Define the unit Select the economically meaningful unit for this business: - Per customer (professional services, SaaS, insurance) - Per subscriber (media, software, telecom) - Per transaction (payments, marketplace, e-commerce) - Per store / location (retail, restaurant, branch) - Per seat / licence (enterprise software) - Per unit shipped (manufacturing, consumer goods) Document the unit definition and confirm it is consistent with how management reports. ### Step 2 — Revenue per unit - Average revenue per unit (ARPU/ARPC) — current and trended - Pricing structure: fixed vs variable, bundle vs a-la-carte - Mix: premium vs standard vs entry-level proportion - Upsell and cross-sell revenue captured per unit ### Step 3 — Direct costs per unit - Cost of goods sold (COGS) per unit - Direct labour per unit - Materials and delivery cost per unit - → Gross margin per unit = Revenue per unit − Direct costs per unit ### Step 4 — Contribution margin per unit Contribution margin = Gross margin − variable operating costs per unit: - Variable S&M: commissions, co-marketing, channel fees - Variable customer support: cost per ticket × tickets per unit - Variable delivery/fulfilment costs ### Step 5 — Customer acquisition metrics (subscription / recurring models) - **CAC**: total S&M spend ÷ new units acquired in the period - **LTV**: Contribution margin per unit × (1 ÷ monthly churn rate) for subscriptions; or estimated average lifetime × annual contribution margin for others - **LTV/CAC ratio**: target >3.0x for healthy unit economics; <1.5x requires urgent attention - **Payback period**: CAC ÷ monthly contribution margin (target <18 months for growth-stage; <12 months for mature) ### Step 6 — Retention and churn - **Gross churn**: units lost ÷ beginning units (quarterly or annual) - **Net churn**: (units lost − new units gained) ÷ beginning units - **Net revenue retention (NRR)**: (Revenue from existing units at end of period) ÷ (Revenue from same units at start). NRR >100% = expansion from existing units - Flag if gross churn >15% annually for SaaS; >10% for professional services ### Step 7 — Unit economics at scale Model contribution margin at 2x and 3x current scale: - Fixed costs that spread across more units (tech infrastructure, management, compliance) - Identify the breakeven volume: units required for the contribution to cover allocated fixed costs - Model the economics at management's plan volume and at 70% of plan (downside) ## Output format | Metric | Current | 2x Scale | 3x Scale | |--------|---------|----------|----------| Separate tables for: 1. P&L per unit (revenue, COGS, gross margin, variable opex, contribution margin) 2. CAC/LTV/payback table (subscription businesses only) 3. Churn and retention analysis 4. Breakeven and scale economics ## Quality gates - [ ] Unit definition documented and confirmed consistent with management reporting - [ ] Gross margin and contribution margin clearly distinguished - [ ] LTV/CAC computed for all recurring-revenue business models - [ ] Churn analysis distinguishes gross from net churn - [ ] Breakeven volume computed and compared to current run-rate - [ ] Scale economics modelled at 2x and 3x current volume ## Related skills - `workflow-pe-ic-memo` — unit economics feed Section V (Investment Thesis) and Section IV (Financial Analysis) - `workflow-pe-value-creation-plan` — VCP initiatives that improve unit-level CAC, margin, and NRR - `workflow-pe-ai-readiness` — AI opportunities that improve unit economics (e.g., support automation → lower cost per ticket)