Unit economics:
what each customer earns you after their own costs

Choosing the unit that the business really sells

Unit economics asks a simple question: does one unit of what we sell make money after the costs that unit causes? The unit depends on the business. For a clinic it is a patient visit. For a subscription app it is a paying user per month. For a delivery service it is one order, and for a factory one item.

What matters is that the unit is the thing that scales. If you can double the number of units without doubling the rent, the rent is not a unit cost. Unit economics therefore leaves out fixed costs on purpose, because its job is to answer whether growth is worth chasing before you ask whether the whole business covers its overheads.

Two measures sit on top of the per-unit profit. How much it costs to acquire a customer, and how many units that customer will buy. Put together they tell you whether a customer is worth having.

A useful habit is to write the unit down in one sentence before calculating anything: one patient visit, one paid subscriber for one month, one delivered order. If two people in the team describe the unit differently, their numbers will not agree, however carefully each has done the sums.

Revenue minus the cost that unit causes

Rent, the receptionist's salary and the cost of the equipment do not appear. Those are fixed for the month and belong in the break-even sum further down, not in the per-visit figure.

Acquisition cost and the payback period

Winning a new patient costs money before the first visit: advertising, a referral fee, a free check-up. Divide the total spent on acquisition in a period by the number of new customers won in it to get the customer acquisition cost, or CAC.

With a CAC of ₹900 and contribution of ₹400 a visit, payback takes 900/400 = 2.25 visits, so the patient becomes profitable on the third visit. If the patient returns every 4 months, that is at about month 8.

What a customer is worth over time

Lifetime value (LTV) adds up the contribution a customer brings over the whole relationship. A simple version multiplies contribution per visit by the number of visits they will make. If a patient comes 3 times a year and stays two years, that is 6 visits.

Many investors look for an LTV of about three times CAC. It is a convention, not a law. A business with fast payback and little capital needs can do well with less, while one that needs a long wait for payback should want more. What matters is that your own ratio is a result of measured retention, not hoped-for retention.

The same sums for a monthly subscription

When customers pay every month and can leave at any time, the number of purchases is not fixed. The usual shortcut is to model retention with a monthly churn rate: the share of customers who cancel each month. The average customer then stays for one divided by churn months.

Small changes in churn move the answer a lot. At 6% churn the same customer is worth about ₹6,667, a third less, which is why retention work often pays back faster than new advertising.

Linking the unit to the whole business

Fixed costs finally enter at this stage. If the clinic's rent, salaries and equipment come to ₹1,20,000 a month, it needs ₹1,20,000 ÷ ₹400 = 300 visits a month to break even. Every visit above that adds ₹400 to profit.

The same logic shows which lever to pull. Raising the fee by ₹100 adds ₹100 to contribution on every visit, a 25% improvement, whereas cutting consumables by ₹100 would do the same only if it were possible without harm. Reducing CAC speeds up payback, and getting patients to return improves LTV for free.

• Price: check what happens to volume, since a higher price can lose patients.
• Variable cost: renegotiate consumables, and review the clinician's share against the time taken.
• Retention: reminders and follow-up plans increase visits per patient, and cost little.
• Acquisition: referrals usually have lower CAC than paid advertising.

Where unit economics goes wrong

There is also the question of who bears the cost. A clinician share that is a flat amount per consultation is variable, whereas a doctor on a monthly retainer is fixed. The same ₹250 can sit on either side of the line depending on the contract, and the unit economics changes with it.

• Leaving out costs that really are variable, such as support time, returns or refunds.
• Counting a blended CAC that mixes free word-of-mouth with paid channels, which hides how expensive the paid channel is.
• Using a lifetime estimate before any customer has actually reached it.
• Treating the average as the truth. Some customers come ten times and some once, and the average hides the shape.
• Forgetting cash timing. A customer may be profitable over two years yet cost the business cash for the first eight months.