As we discussed previously, unit economics focuses on matching profits and variable costs per one client. Analyzing the both, you see if your activity is effective. The easiest way to describe the math behind unit economics is:
The profit per paying user = (CPC (Cost Per Click) / CR1 (Conversion Rate) / CR2 (Conversion Rate) + (AVP (Average Price) – COGS (Cost of Goods Sold) x Ret (Retention)
It looks similar to the ideas of performance marketing, doesn’t it?
However, when you learn to think in terms of unit economics, you realize that everything you do to change your product influences this equation. Your designers/marketers/head of Product/ head of Sales /whoever’s activity becomes a tool to experiment and see positive results. Unlike performance marketing, unit economics is not limited to tracking only CAC, traffic availability and conversion. The metrics span across all processes within a company.
In next posts about business management and unit economics we’ll tell you about a tool that we developed for our own use and that helps to understand what to take care of if you want your digital product to pay off.