Consumer internet businesses often grow fast while losing money. Unit economics separate healthy growth from expensive growth by looking at a single unit: one order, one customer or one month of a subscriber.
Contribution margin layers
- CM1: revenue minus direct cost of goods or services.
- CM2: CM1 minus variable fulfilment costs such as delivery, payment gateway and packaging.
- CM3: CM2 minus variable marketing and discounts.
Definitions differ by company, so always check what sits in each layer before comparing.
Customer acquisition cost (CAC) and lifetime value (LTV)
CAC is the marketing and incentive spend to acquire a new customer. LTV is the contribution a customer generates over their life with the business. LTV depends on retention, so cohort analysis, tracking groups of customers by the month they joined, is the most honest way to estimate it.
Payback period
How many months of contribution it takes to earn back CAC. Shorter payback means growth can be funded with less capital.
Red flags
- Blended CAC that hides rising paid-acquisition costs.
- Retention measured only on early, high-intent cohorts.
- Contribution that turns positive only because of one-off brand funding.
This explainer is educational and describes general frameworks. It does not refer to any specific company's data.