Question 1

What are unit economics?

Accepted Answer

The revenue and costs attributable to **a single unit** — one customer, one order, one subscription — stripped of everything else. The question they answer is simple and brutal: **does one of these make money?**

**Why it matters more than total figures.** A business losing money overall might be investing in growth, or might be selling at a loss. Those look identical in the headline numbers and are completely different situations. Unit economics separate them.

**If a single unit is unprofitable, scale makes it worse.** This is the point. "We'll make it up on volume" is only true if the unit is already profitable and fixed costs are being spread; it is false if each sale loses money.

**How to define the unit.** Whatever the business genuinely repeats — a customer for a subscription business, an order for e-commerce, a delivery for logistics, a seat for software.

**The core components:**

**Contribution per unit** — revenue minus **all variable costs**. For e-commerce that means product cost, packaging, shipping, payment fees, and a realistic allowance for **returns**, which is the item most often omitted and frequently the difference between profit and loss.

**Customer acquisition cost (CAC)** — total sales and marketing spend divided by customers acquired. **Paid CAC**, counting only paid channels, and **blended CAC**, counting everything, differ substantially, and quoting the flattering one is common.

**Lifetime value (LTV)** — contribution from a customer over the whole relationship, which depends on **retention**. For a subscription, roughly contribution per period divided by churn rate.

**The ratios.** **LTV:CAC** is conventionally cited as needing to exceed 3:1, though the number is a rule of thumb rather than a law. **CAC payback period** — months to recover acquisition cost from contribution — matters more for cash, since a long payback consumes working capital regardless of eventual profitability.

**Where the figures get flattered:** using revenue rather than contribution in LTV; assuming retention that has not been observed; excluding the cost of the team who deliver the service; and ignoring that **CAC rises as you scale**, because the cheapest customers are acquired first.

General information, not financial advice.

Question 2

What is break-even analysis?

Accepted Answer

Working out how much you need to sell to cover your costs — the point at which the business stops losing money, before it makes any. The two cost types it depends on: Fixed costs do not change with

Question 3

What is value-based pricing?

Accepted Answer

Setting a price based on what the outcome is worth to the customer, rather than on what it costs you to produce or what competitors charge. It is widely recommended, rarely implemented, and it

Question 4

What is an earn-out, and why do acquisitions use them?

Accepted Answer

A structure where part of the purchase price is paid later, conditional on the business hitting agreed targets. It exists to bridge a disagreement about value: the seller believes the business will

Question 5

What is the difference between a business model and a revenue model?

Accepted Answer

A business model describes how the whole business creates and captures value; a revenue model is the narrower question of how you charge. The second is part of the first, and treating them as the

Question 6

What do TAM, SAM and SOM mean?

Accepted Answer

Three progressively narrower measures of market size — total addressable, serviceable addressable, and serviceable obtainable market — used mainly in investor presentations and frequently misused

Question 7

What is the difference between revenue, profit and cash flow?

Accepted Answer

They measure three different things, and a business can be strong on one while failing on another — which is why profitable companies go bust. Revenue (turnover). The total value of sales in a

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