Advantages and Disadvantages of Unit Economics Calculation
Posted: Wed Jan 29, 2025 10:14 am
Unit economics makes the commercial model more understandable and easier to manage. Calculations allow you to see how much money the company invests in attracting, what losses there are, and whether the income from a client or a certain unit of goods is enough.
There is a common phrase: "Margin forgives everything." What is its essence? The enterprise attracts clients, there are some expenses, but the income is higher than all expenses. The financial model works perfectly, the business is developing.
Advantages and Disadvantages of Unit physicians email list Economics Calculation
Source: shutterstock.com
Systemic shortcomings are revealed in the process of business expansion. There are a large number of payments, but the catch is that many of them are deferred. Hence the cash gaps.
Unit economics shows business from a new perspective, allowing you to see and assess risks in advance.
Let's look at the main disadvantages:
At first, calculations take a long time
It is necessary to analyze all types of launched advertising, the client and the user individually. It will be difficult for a business that is conducted through offline sales and cooperates with individuals, and not with other enterprises. The initial results of calculations may indicate that the merchant worked with insufficiently accurate marketing metrics.
Over time, calculations will be automated, it will become much easier to cope with them, and there will be a minimum number of errors.
High probability of errors at the beginning
It is necessary to master a considerable number of formulas, not all of which can be understood the first time. This is one of the reasons why experts often offer new business projects a unit economics audit or its calculation from scratch.
Unit economics requires precision. It happens that entrepreneurs "bring" calculations to preferred data.
Let's look at it in practice. The LTV to CAC ratio is supposed to be at least 3:1. Of course, this is just an indicator. It hardly reflects the viability of the commercial model. An event was organized for future investors, where a startup with an LTV to CAC ratio of 2.6 was announced. But in general calculations, the result was rounded to 3. Naturally, such an economy does not fit in with the real one.
Of course, in short-term calculations, some of the expenses may seem insignificant. Often they show themselves precisely in long-term options, and only the accuracy of the calculations will allow them to be predicted. It becomes clear that it is not worth rounding off the data, this will undermine the entire business economy.
There is a common phrase: "Margin forgives everything." What is its essence? The enterprise attracts clients, there are some expenses, but the income is higher than all expenses. The financial model works perfectly, the business is developing.
Advantages and Disadvantages of Unit physicians email list Economics Calculation
Source: shutterstock.com
Systemic shortcomings are revealed in the process of business expansion. There are a large number of payments, but the catch is that many of them are deferred. Hence the cash gaps.
Unit economics shows business from a new perspective, allowing you to see and assess risks in advance.
Let's look at the main disadvantages:
At first, calculations take a long time
It is necessary to analyze all types of launched advertising, the client and the user individually. It will be difficult for a business that is conducted through offline sales and cooperates with individuals, and not with other enterprises. The initial results of calculations may indicate that the merchant worked with insufficiently accurate marketing metrics.
Over time, calculations will be automated, it will become much easier to cope with them, and there will be a minimum number of errors.
High probability of errors at the beginning
It is necessary to master a considerable number of formulas, not all of which can be understood the first time. This is one of the reasons why experts often offer new business projects a unit economics audit or its calculation from scratch.
Unit economics requires precision. It happens that entrepreneurs "bring" calculations to preferred data.
Let's look at it in practice. The LTV to CAC ratio is supposed to be at least 3:1. Of course, this is just an indicator. It hardly reflects the viability of the commercial model. An event was organized for future investors, where a startup with an LTV to CAC ratio of 2.6 was announced. But in general calculations, the result was rounded to 3. Naturally, such an economy does not fit in with the real one.
Of course, in short-term calculations, some of the expenses may seem insignificant. Often they show themselves precisely in long-term options, and only the accuracy of the calculations will allow them to be predicted. It becomes clear that it is not worth rounding off the data, this will undermine the entire business economy.