Unit Economics is about evaluating the potential profitability of your solution by modeling the cost assumptions relative to the pricing assumptions. In the Market Sizing Tool, you modeled the potential revenue (sales transaction volume times average sales price for each Market Model). The result is your Gross Margin or Gross Profit. The key element of your Strategy Hypothesis to be modeled in this tool are assumptions, logic and uncertainties that drive the 'Cost of Goods Sold' or 'Cost of Sales' for your solutions.
Unit Economics is about evaluating the potential profitability of your solution by modeling the cost assumptions relative to the pricing assumptions. In the Market Sizing Tool, you modeled the potential revenue (sales transaction volume times average sales price for each Market Model). The result is your Gross Margin or Gross Profit. The key element of your Strategy Hypothesis to be modeled in this tool are assumptions, logic and uncertainties that drive the 'Cost of Goods Sold' or 'Cost of Sales' for your solutions.
Analyzing Unit Economics tells you how much profit you can generate on a per sale or per production unit basis. If you can't generate a profit on sales based on your current best assumptions, then it probably doesn't make sense to spend time or energy defining and modeling the implementation and operational assumptions for your Strategy Hypothesis (unless, of course, your Strategy includes a 'Loss Leader' or low/negative margin production unit or sale that drives the volume for another that is profitable enough to cover the costs of both). In any case, evaluating and refining your strategy to improve the gross profit is a very high impact activity.
Unit Economics modeling and analysis can help you understand the relative impact of different expenses and pricing on the profitability and which key assumptions or uncertainties to focus on refining and validating to improve your confidence in the gross margin. How are your prices and costs changing over time? Is the profit increasing over time, or decreasing? At your expected price point, what cost values do you need to hit in order to meet your gross margin targets?
