Have the Patience to Develop Strong Unit Economics

Quote Unit Economics



If you sell something your key target customers truly need, your key target customers' willingness to pay should be high. Your key target customers should be prone to up- and cross-sells and stick around. High average revenue per customer, high contribution margin, low churn and ultimately a high customer lifetime value (CLV) are usually the consequences of product/market fit. 


Highly delighted customers will also spread the word. Customer referrals as well as a strong brand will decrease your customer acquisition costs (CAC).


Product/market fit and product/channel fit therefore usually entail strong unit economics in terms of a high customer lifetime value (CLV) to customer acquisition costs (CAC) ratio and a short payback period. Given the high average revenue per customer and assuming a compelling contribution margin, you should be able to recoup your customer acquisition costs fast. 


The shorter your payback period, the earlier you can reinvest the money spent on acquiring customers into acquiring even more customers. You need less money to ignite the high growth engine and create sustainable high growth.


The unit economics concept is a powerful tool that helps you better understand whether you pursue a viable business model.


In my book FastScaling, I also explain how you can deconstruct your unit economics and steer your business towards high growth readiness by improving each and every unit economics variable.


Have the patience to develop strong unit economics. It will eventually pay off and pave the path to sustainable high growth.


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Comments: 1
  • #1

    Tom Puijpe (Sunday, 30 May 2021 01:28)

    Tesla first had a terrible margin.

    One Tesla Roadster would cost $200k and they then sold for $85k.
    Only after replacing the ceo (Eberhard) and getting VC manufactering expert Tim Watkins to refine the processes did the cost of goods sold and the economics variables) go down.

    And ofcourse they are now profitable...