Let’s dive deeper into product development & management. Today our focus is to tell you about an efficiency evaluation method we believe to be the most relevant for startups and new businesses. It’s unit economics: a product management approach that helps you fine-tune your product development activity. It’s a way to find out if you scale profits or costs.
Unit economics is calculated according to a simple formula: operational profit per client minus variable costs per the same client. If you get a positive number, then you’re scaling the profits. If it’s negative, then it seems that your marketing strategy needs optimization. If it’s equal to zero, then you’re in a great place to experiment more and achieve profit scaling.
In short, the sequence of actions would be the following: we make up a hypothesis - set up an experiment (e.g. an ad campaign) - test the results - calculate the profits or costs. Basically, it matches well with the idea of the product development approach, where we prioritize experimenting and reflecting on the experience to achieve effectiveness. To sum up, unit economics:
- Tracks profits & costs per one client,
- Shows ways to grow to grow your business,
- Treats your product development activity as an investment.
Unit economics has proved to be effective for many of our clients who come for promotion & business growth advice. We’ll share more in our next posts.