Unit Economics

Unit economics refers to the direct revenues and costs associated with a particular business model on a per-unit basis — typically per customer, per order, or per transaction. The goal is to determine whether each unit of business is profitable, and by how much.

For SaaS: unit = one customer. Unit economics = LTV vs CAC. For marketplaces/e-commerce: unit = one order. Unit economics = order revenue vs. fulfillment + delivery + returns + customer service costs for that order. For financial services: unit = one loan or one transaction.

Unit economics is the answer to "does the core business model work?" before asking "can it scale?" A business with negative unit economics is not made profitable by growth — it just loses money faster at scale.

India's 2020–2022 funding boom funded many companies with negative unit economics at scale — particularly in quick commerce, hyperlocal delivery, and some D2C categories. The 2022–2024 correction forced every company to prove positive unit economics before raising. This has permanently changed what Indian investors consider fundable.

A critical India nuance: contribution margin vs. unit economics. Contribution margin (revenue minus variable costs) is easier to make positive than true unit economics (which includes fully loaded CAC and support costs). Many Indian startups report contribution margin as "positive unit economics" — investors at seed are accepting this framing; Series A investors are not.