Unit Economics Definition (E-commerce)

Definition

Unit economics are the direct revenues and costs associated with a particular business model, expressed on a per-unit basis. For an e-commerce seller, one “unit” is typically one product sold.

People Also Ask: How do you calculate unit economics?

To calculate unit economics for a physical product, you need to understand the relationship between two main numbers:

1. Customer Lifetime Value (LTV): How much revenue a single customer brings in over their relationship with your store.
2. Customer Acquisition Cost (CAC): How much it cost in marketing to acquire that one customer.

You also need to factor in your Cost of Goods Sold (COGS) and variable fees (Marketplace fees, payment processing, shipping) for that single unit.

People Also Ask: What is a good LTV to CAC ratio?

A healthy e-commerce business aims for an LTV to CAC ratio of at least 3:1. This means that if it costs you $30 to acquire a customer (CAC), that customer should generate at least $90 in lifetime gross profit for your business.

Why Unit Economics Matter

If the Selling Price is greater than the sum of the costs, you have positive unit economics. If it’s lower, your business model is flawed. Scaling a business with negative unit economics will only cause you to lose money faster.