More sales, bigger losses
A Kochi organic food startup doubled ad spend and orders, and lost twice as much money.
Average order was ₹900 with a 35% margin, so ₹315 gross profit. Delivery and payment fees took ₹160, leaving ₹155. CAC was ₹600, and customers ordered 1.4 times a year.
They raised the minimum order, added subscription boxes and a WhatsApp reorder flow. Contribution per order rose to ₹320 and repeat orders to 3 a year, so CAC paid back by the second order.
Illustrative example based on a common pattern in Kerala e-commerce accounts. Numbers rounded.
What unit economics is
Contribution margin is what each order leaves after variable costs, before fixed costs like rent and salaries. It is what pays back CAC.
Payback tells you how long cash is tied up in each new customer. Businesses with fast payback can scale ads faster.
Contribution per order = AOV × gross margin − variable costs · Payback = CAC ÷ contribution per order
Calculate your unit economics
- Contribution per order
- ₹750
- Profit on first order after CAC
- −₹150
- Orders to pay back CAC
- 1.2
Over 12 months each customer brings about ₹300 after acquisition cost. You need repeat orders to profit, so retention (WhatsApp, email, offers) matters as much as ads.
Want a second opinion on your numbers? Join the community and post them for doubt-clearing.
Worked example
| Average order value | ₹2,000 |
|---|---|
| Gross profit (50%) | ₹1,000 |
| Other costs per order | −₹250 → contribution ₹750 |
| CAC (incl. GST) | ₹900 → payback 1.2 orders |
How experienced marketers use Unit economics
1. Decide whether to scale ads
Only scale when payback fits your cash and repeat rate.
2. Fix pricing and bundles
Raising AOV often improves unit economics more than lowering CAC.
3. Pitch to investors or partners
Clear unit economics shows the business can grow profitably.
What good looks like
| Business type | Starting rule | Why |
|---|---|---|
| LTV : CAC | 3 : 1 or better | Common rule of thumb. |
| Payback (e-commerce) | First or second order | Starting rule. |
| Payback (subscriptions/B2B) | Under 12 months | Depends on cash available. |
When the number lies
- Average hides mix
- Some products or channels lose money while others carry them. Calculate by product or channel.
- Repeat rate assumptions
- New businesses often guess repeat orders too high. Use real cohorts once you have them.
Mistakes to avoid
Ignoring delivery, returns and payment fees
Contribution looks much better than reality.
Using CAC without GST
Payback is longer than you plan for.
Scaling with negative contribution
Every extra sale increases losses.
Related terms
Questions people ask about unit economics
What is unit economics?
The revenue and costs of one unit, such as one order or one customer, to see if each one is profitable.
What is contribution margin?
Revenue minus variable costs (product, delivery, payment fees) for each order, before fixed costs.
What is a good LTV to CAC ratio?
About 3:1 is a common rule of thumb, with CAC paid back quickly.
How do I improve unit economics?
Raise order value, improve margin, cut delivery and return costs, lower CAC, or increase repeat purchases.
Put it into practice
- SOP 036: Calculate a Meta Ads Budget from a Revenue Goal →
- SOP 309: Track WooCommerce Purchases in GA4, Google Ads and Meta →
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