Unit Economics: Is Each Customer Profitable?
After Cohort Analysis in Marketing Explained shows whether customers stay over time, unit economics answer the next fundamental question: Does this business make money on each unit sold? In interviews, this becomes the sanity check that separates growth from profitable growth by testing whether each customer or order contributes money after product, variable, and acquisition costs.
- Unit economics answer the fundamental question: Does this business make money on each unit sold?
- Gross Margin = (Revenue - COGS) / Revenue, and reveals whether the product itself is profitable before overheads.
- Contribution Margin = (Revenue - COGS - Variable Costs) / Revenue, and reveals profitability after all variable costs such as delivery, packaging, and payment gateway.
- ROAS = Revenue from Ads / Ad Spend, and reveals how efficiently ad spend generates revenue.
- CAC:Revenue Ratio = CAC / First Purchase Revenue, and reveals whether you can recover acquisition cost on first order.
- Burn Multiple = Net Burn / Net New ARR, and reveals how much cash is burned per ₹1 of new revenue.
Unit Economics as a Growth Sanity Check
Unit economics connect revenue, product cost, variable costs, acquisition efficiency, and burn efficiency into one view of profitability. The big picture is simple: gross margin checks whether the product itself works, contribution margin checks variable-cost profitability, ROAS and CAC:Revenue check acquisition efficiency, and burn multiple checks the cash efficiency of growth.
Unit economics answer the fundamental question: Does this business make money on each unit sold?
Reading the Unit Economics Metrics
Gross Margin uses the formula (Revenue - COGS) / Revenue. Its good benchmark is 60%+ for SaaS, 40%+ for D2C, and 15-25% for quick commerce. It reveals whether the product itself is profitable before overheads.
Contribution Margin uses the formula (Revenue - COGS - Variable Costs) / Revenue. Its good benchmark is 30%+ for D2C and 5-10% for quick commerce. It reveals profitability after all variable costs, including delivery, packaging, and payment gateway.
ROAS uses the formula Revenue from Ads / Ad Spend. Its good benchmark is 3x+ for D2C and 5x+ for mature brands. It reveals how efficiently ad spend generates revenue.
CAC:Revenue Ratio uses the formula CAC / First Purchase Revenue. Its good benchmark is < 50% as healthy and < 100% as acceptable if high LTV. It reveals whether you can recover acquisition cost on first order.
Burn Multiple uses the formula Net Burn / Net New ARR. Its good benchmark is < 1.5x as efficient and > 2x as concerning. It is a SaaS efficiency metric - how much cash burned per ₹1 of new revenue.
Structuring a Unit Economics Interview Answer
"How would you check whether a quick commerce business is growing profitably?"
Do not stop at revenue or ROAS. ROAS shows how efficiently ad spend generates revenue, but unit economics also require gross margin, contribution margin, CAC:Revenue Ratio, and burn multiple.
The most frequent error is treating growth as profitable growth without checking contribution margin and acquisition recovery. This costs points because revenue from ads, first purchase revenue, and cash burn reveal different parts of whether the business actually makes money on each unit sold.
Conclusion
Unit economics are the profitability sanity check behind growth. If gross margin, contribution margin, acquisition efficiency, and burn efficiency work together, the business is not just growing - it is moving toward profitable growth.