You Can’t “Feel” Your Way to Profit: Why Every Startup Needs Unit Economics
There’s a phase in almost every startup where things feel exciting, fast-moving, and intuitive, you’re building, posting, selling, responding, adjusting, and improvising.
In those early days, you can actually get surprisingly far by relying on energy and gut feeling.
But sadly… your gut can’t scale a business.
If you don’t track financial metrics, you’re bound to hit a wall.
Profitability will become unpredictable.
If you’re in that spot (or headed toward it), I want to introduce you to a concept that can change how you think about your business entirely.
It’s called unit economics.
I know it sounds like something you need a fancy degree to understand, but it can be surprisingly simple.
In this article, I’ll show you how to track your financial metrics, and adjust the math in your favor, making it almost IMPOSSIBLE to fail.
This might just be the most straightforward (and empowering) business concept you read today.
(I know, tough competition :P)
What The Hell Are Unit Economics?
Let’s make this as simple as possible.
Unit economics is about understanding how much money your business makes, and spends, for each individual unit sold. That “unit” could be one customer, one subscription, one transaction, one project… whatever the basic repeatable component of your business is.
If you sell software, it’s probably a subscription.
If you run an agency, it might be a client project or retainer.
If you sell physical products, it’s a single item sold.
Once you define your “unit,” you can start answering the key question:
For each unit I sell, how much profit does my business actually make?
That’s unit economics. And once you understand it, you’ll be able to make better decisions across the board, from pricing, to marketing, to hiring, to scaling.
Why Most Founders Avoid It (and Why That’s a Problem)
A lot of founders avoid numbers early on, usually because it feels like an overwhelming world of spreadsheets, equations, and financial terms that belong in a corporate finance textbook.
Instead, they rely on gut instinct and what I like to call “momentum logic”.
Basically, if things are moving, then things must be working.
And while that is true to a certain extent, the momentum logic is a TERRIBLE tool for long-term profitability.
Because… how can you even know what’s working, if you don’t know your numbers?
Without unit economics, you can grow yourself straight into a cash flow crisis.
You can build funnels that get clicks but bleed profit.
You can keep acquiring customers at a loss, thinking it’s just a “volume” problem, when in fact it’s a margin problem.
In other words, you can be doing all the right things on the surface, and still be one metric away from disaster.
On the other hand, understanding your numbers gives you the opportunity to make ONE tweak, and almost instantly double, or even triple your business!
Let me show you how…
The Six Metrics You Need to Track
If you're serious about turning your business into a scalable, profitable machine, there are six key numbers you should be tracking.
1. Customer Acquisition Cost (CAC)
How much money do you spend, on average, to acquire one paying customer?
This includes ad spend, software, sales team salaries, tools, outreach, everything related to acquiring that customer. If you’re spending $500 to bring in one customer, but that customer only brings you $300 in revenue, you’ve got a major problem (no matter how many leads are coming in).
2. Lifetime Value (LTV)
How much revenue does one customer bring you over the course of their relationship with your business?
If your product costs $50/month and the average customer stays for 6 months, your LTV is $300. The key is to compare this directly to your CAC. You should always aim for your LTV to be significantly higher than your CAC, otherwise, your business is eating itself alive with each sale.
Always think:
How can I increase my customers’ LTVs?
Making more customers out of one customer is ALWAYS easier (and cheaper) than acquiring a new one.
For example, you can increase the average order value. Or you can increase the time they stay in your subscription.
There are really countless ways to go about this. You just need to figure out what makes the most sense for you.
3. Conversion Rate (CR)
This is how efficiently your funnel moves people from interest to purchase.
If 1,000 people visit your landing page and 30 of them buy, your conversion rate is 3%.
You should be tracking conversion rates at every stage of your funnel, because small improvements can lead to massive revenue gains.
THIS is how you can easily skyrocket your business just by tweaking some numbers.
Just look at your entire funnel, and see if there’s a CR that’s heavily underperforming. Most funnels typically have at least one (or more).
Let’s say you have a call funnel, and theoretically, everything works well up to the call.
For some reason, your show rate is only 25%.
(That’s really bad, by the way.)
If you implement a thank-you page with a VSL and add some email reminders that encourage the prospect to consume more of your content, you can easily get it to 75%.
That means you effectively TRIPLED your business with one small tweak, since 3x people will show up to the call and be closed.
See how effective it is to track your conversion rates?
4. Churn Rate
Churn is how quickly customers are leaving your business.
This applies especially to subscription-based models (like SaaS), but any business can benefit from measuring churn.
High churn means you’re constantly replacing lost revenue, which makes growth feel like running on a treadmill, exhausting and unsatisfying.
5. Retention Rate
This is the flip side of churn, a.k.a., how many customers stick around. High retention means you’re doing something right.
Customers are getting value, and they’re coming back for more, hell yeah.
A strong retention rate increases your LTV and creates stability in your revenue.
(Hint: stability is what allows you to confidently invest in growth.)
6. Variable Costs
Variable costs are the costs directly tied to delivering one unit of your product or service. This might include packaging, hosting, materials, fulfillment, or delivery labor.
If your variable costs are too high, you might be selling a lot… and still not making any real profit.
Can you find a way to cut costs WITHOUT cutting quality?
I know it’s not easy, but it should constantly be on your mind.
Why Unit Economics Changes Everything
Can you see how looking at your unit economics gives you the ability to ALWAYS know your next move?
You stop trying random marketing tactics just because they worked for someone else.
You stop obsessing over top-line revenue and start focusing on the numbers that move your business forward.
Let’s say your CAC is $200 and your LTV is $600. Now you know that you can spend up to $200 to acquire a customer and still make a healthy profit.
You can confidently invest in paid ads, affiliates, outbound, whatever, as long as you’re under that threshold.
Or maybe you realize your churn rate spikes after 30 days. Now you know where to focus: onboarding, customer success, product experience.
You can build systems to fix the issue, and increase retention.
This is the power of unit economics. It tells you what’s working, what’s broken, and where your biggest opportunities for growth really are.
But Isn’t This Complicated?
No. And I’ll prove it.
I put together a full breakdown of unit economics in a way that’s actually fun to read (yes, really 🤓).
It walks you through every key concept, shows you real-world examples, and gives you simple ways to apply this stuff to your own business, even if numbers make your brain melt a little.
In my Unit Economics Explained article, you’ll learn:
How to calculate and improve your CAC, LTV, and more, without hiring a consultant who’ll tell you “yeah, just cut costs and increase revenue”...
The BIGGEST mistakes founders make with their metrics, even when they do track them.
How to make smarter product, pricing, and marketing decisions by looking at simple numbers that tell you exactly where your focus should be.
And why knowing your churn rate is like understanding why your ex broke up with you! (It’s personal).
You can run your business on ‘vibes’ for a little while.
You can even succeed, temporarily, without knowing your numbers.
But if you want to build something sustainable… something that scales without killing your margins, draining your energy, or constantly surprising you in bad ways, then you need to embrace unit economics.
Here’s a quick summary so you can do just that:
You can’t scale with gut feeling alone. It might help you launch, but it will betray you when you try to grow.
Unit economics = clarity. If you don’t know how much you earn and spend per customer, you’re literally blind.
Start by tracking 6 simple metrics: Customer Acquisition Cost (CAC), Lifetime Value (LTV), Conversion Rate (CR), Churn Rate, Retention Rate, Variable Costs. That should be plenty to start with.
If your CAC is higher than your LTV, you’re uhm… dying?
Tiny funnel tweaks = massive profit gains. Just fixing your show rate or opt-in rate could 2x or 3x your revenue.
High churn = red alert. If customers keep leaving, you’re building a leaky bucket. Retention is your most overlooked growth lever.
Variable costs eat margins alive. Keep quality high, but always ask yourself: “Could I deliver this cheaper, smarter, or faster?”
FAQ on Unit Economics
What are unit economics in startups?
Unit economics refers to understanding the profitability of your business at the per-unit level, a single customer, product, transaction, or subscription. It defines how much revenue is generated versus costs incurred for every individual unit sold. This helps entrepreneurs make data-driven decisions around pricing, scaling, and overall profitability.
Why can’t startups rely on intuition for growth?
While intuition may spark innovation during a startup's early stages, it cannot scale effectively. Without measurable financial metrics like unit economics, businesses risk unpredictable profitability and cash flow crises, making sustainable growth unattainable.
How does Customer Acquisition Cost (CAC) impact startup profitability?
CAC represents the amount spent to acquire a single paying customer. If this metric is higher than the revenue generated from the customer, your business ends up spending itself into a loss. By optimizing CAC, startups improve profitability and allocate resources more efficiently.
Why is the Lifetime Value (LTV) of customers crucial?
LTV captures how much revenue a customer brings to a business throughout their engagement. A high LTV ensures that customer acquisition remains profitable over time and allows businesses to increase margins by improving retention or upselling.
What does churn rate reveal about a business?
Churn rate shows the percentage of customers who leave over a specific time. A high churn rate indicates unsatisfied customers or insufficient value, which hampers growth as businesses struggle to replace lost revenue consistently.
How can startups reduce their variable costs effectively?
Startups can cut variable costs by finding smarter, more efficient ways to deliver quality products or services. This may involve renegotiating supplier deals, streamlining processes, or adopting cost-effective technology without sacrificing customer experience.
Is tracking conversion rates worth the effort?
Absolutely! Conversion rates indicate the effectiveness of your marketing and sales funnels. Even small improvements in this area can lead to significant jumps in revenue, making it one of the most impactful metrics for scaling a startup.
What role does retention rate play in scaling your business?
Retention rate measures how well you keep customers engaged, leading to stability in recurring revenue. High retention creates less reliance on constantly acquiring new customers, making growth smoother and less expensive over time.
How do unit economics empower founders?
Unit economics provides clarity, allowing founders to accurately assess costs, margins, and customer value. With this knowledge, entrepreneurs can make targeted adjustments in pricing, marketing, and operations to secure sustainable growth.
Can startups master unit economics without a business degree?
Yes! The core concepts of unit economics are straightforward and don't require extensive financial expertise. Founders can learn to track metrics like CAC, LTV, and churn with accessible tools and resources, enabling smarter decision-making.