In investing we often hear people say that this business has great unit economics, but what does this really mean and why does it matter? In this post I will walk you through what it means using the example of a business and simplify so that you can use it to make more informed decision when doing your own analysis. What is Unit Economics? In its most fundamental definition unit economics just refers to how much does a business keep for every unit of product/service they sell. Let's say you run a business of selling handbags. You source these handbags from a wholesaler who charges you $10 for each handbag you purchase. You now go and sell these on eBay for $35 a piece. However you don't make the full $25 as profit. You have to still cover other expenses like shipping cost, fees charged by eBay etc. Lets say you had to pay $8 in shipping cost and you paid $12 to eBay and that is all the costs you have. So for selling 1 product you make: $35 - $12 - $8 - $10 = $5 In business we
Despite the enormous amounts of data and numbers that are available and get looked at, investing for most people still is driven more by emotions than rational thinking. A fundamental reason behind this is that most individuals would look at information, process it and make an investing decision all by themselves. Meaning there is no one other than yourself that you have to convince before making this decision. The flaw with this is that you are the easiest person to convince and there's hardly any objection to your story that you are so convinced of. This is especially exacerbated if you spent a lot of time researching the said company that you are trying to invest in. The thought in our minds being " I have looked at so much information about this company, surely I understand the business very well by now. Others don't realize the opportunity that I do, maybe because they haven't studied it like me. I understand the risks with the business and I should definitely