Unit Economics

What's in this model

Key inputs (4)

Revenue per UnitVariable Cost per UnitFixed CostsUnits Sold

Key results (7)

Gross RevenueTotal Variable CostGross ProfitContribution MarginGross MarginCM per UnitBreak-Even Units

Sales solve all problems. As long as your Unit Economics are aligned. Some business models have more complexity when calculating the Contribution Margin of each incremental sale. This model shows the fundamentals behind this critical calculation. Beware. Price your product or service too low, and no amount of customers will fix your business.

Other Paths

Tiered Usage Pricing

In the range of pricing models, tiered pricing sits closer to being aligned with the customer than flat pricing. This is because the customer gets to benefit from economics of scale. The more they use the product, the cheaper their cost-per-usage. Tiered usage pricing is a common pricing model in software. In many cases, the Tier 1 Price is FREE, with higher tiers combining a fixed monthly fee alongside the additional usage pricing. If you decide to implement tiered usage pricing in your business, anchor the tier limits to median customer usage and the tier prices to your target gross margins.

Updated Apr 29, 2026

Balance Sheet Ratios

When measuring the financial health of a business, Balance Sheet ratios sit closer to be lagging indicators than P&L ratios. This is because they reflect the consequences of operational decisions — how revenue is collected, how inventory is managed, how the business is financed — rather than the decisions themselves These ratios are a standard part of financial analysis in any capital-intensive or credit-sensitive business. In many cases, the most scrutinized ratios are the liquidity ones ( Current and Quick Ratio) because lenders and counterparties use them to assess default risk before extending credit or trade terms. If you're monitoring balance sheet ratios in your business, anchor your working capital assumptions (Days Sales Outstanding, Days Inventory Outstanding, and Days Payable Outstanding) to actual collections and payment data rather than contract terms. Also track Return On Assets and Return On Equity together: a rising ROE driven by leverage rather than improving ROA is a warning sign, not a win.

Updated May 17, 2026

FTE vs. Contractor

Most teams already have an opinion on this trade-off. Few have done the math. This model converts a salary into what your company actually pays, making the FTE and Contractor costs genuinely comparable. The output isn't just a cost comparison. It's the starting point for a broader conversation about where full-time commitment is worth the premium. Run it twice: once with the low-end of your compensation bands, once with the high-end. The range between those two outputs is your uncertainty — and your negotiating room.

Updated Apr 29, 2026

See what path your business is on.

Build a model like this for your own business in minutes.

Join waitlist