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
Learning how businesses work and using that knowledge to invest, with simple math and some principles as guide. Come join me in my journey as I read, try and share what I have learnt.