The revenue and cost associated with a single customer or a single unit sold, used to judge whether growth creates or destroys value.
A business with strong unit economics becomes more profitable as it scales; one with weak unit economics simply loses money faster. The core comparison is what a customer is worth, measured by customer-lifetime-value, against what they cost to win, measured by customer-acquisition-cost.
Aggregate financials hide this entirely. A company can show improving operating-margin while every new customer cohort is worse than the last, because the old cohorts still dominate the mix.
Example: Northwind Cloud earns $3,600 a year per customer at 78% gross margin, keeps them 5.6 years, and spends $4,100 to acquire them. Lifetime gross profit of $15,700 against $4,100 is a 3.8 times ratio.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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