What is Unit Economics?

Unit economics analyzes the revenue and costs associated with a single unit of your business—either one product unit sold or one customer transaction. It answers the fundamental question: is each sale profitable? And if so, how profitable? Unit economics strips away the complexity of aggregate financials to reveal whether your core business model is sound at the individual transaction level.

Why It Matters

A business can grow rapidly while losing money on every sale if unit economics are negative. Understanding unit economics is essential for pricing decisions, channel strategy, marketing spend limits, and determining which products and channels to prioritize. If a product generates $5 profit per unit on your website but loses $2 per unit on Amazon (due to marketplace fees), that insight should directly inform your channel allocation strategy.

How It Works

• Revenue Per Unit: The selling price received for one unit, net of discounts, promotions, and payment processing fees.
• Cost Per Unit: The total cost to sell and deliver one unit, including: product cost (COGS), marketplace fees, payment processing, picking and packing labor, packaging materials, shipping cost, and allocated overhead.
• Contribution Margin: Revenue Per Unit minus Variable Cost Per Unit. This is the profit generated by each unit before fixed costs.
• Channel Economics: Calculate unit economics separately for each sales channel, since marketplace fees, shipping patterns, and average order values vary significantly across channels.

How Nventory Helps

Nventory provides unit-level economics visibility by tracking all costs associated with each order and product across channels. The system calculates contribution margins by SKU and by channel, revealing which products and sales channels are actually profitable and which are eroding your margins—even if top-line revenue looks healthy.