March 29, 2024

Unit economics is a simple yet powerful tool that can help you better understand the success and long term sustainability of your business. Whether you’re the CFO of a powerful company or the businessperson trying to get an e-commerce startup off the ground, you should be using unit economics alongside overall cash flow and annual revenue to analyze your company’s performance and plan for its financial future. What Is Unit Economics? Unit economics describes a specific business model’s revenues and costs in relation to an individual unit. A unit refers to any basic, quantifiable item that creates value for a business. Thus, unit economics demonstrates how much value each item—or “unit”—generates for the business. For an airline, a unit might be single seat sold, whereas a rideshare app like Uber would define a unit as one ride in their vehicle. These units are then analyzed to determine how much profit or loss they individually produce. In the case of a retail store, for instance, its unit economics is the amount of revenue it’s able to generate every month from each single customer. 3 Reasons Unit Economics Is Important Unit economics can help you forecast profits. Understanding unit economics can help you project how profitable your business is (or when it is expected to achieve profitability), since it produces a simple, granular picture of your company’s profitability on a per-unit basis. Unit economics can help you optimize your product. An understanding of unit economics is also helpful in determining the overall soundness of a product, providing evidence to suggest whether it’s overpriced or undervalued. Such information can help a company identify favorable strategies for product optimization, as well as determining whether marketing expenses are worth the cost. Unit economics can help you assess market sustainability. Unit economics is also particularly adept at analyzing a product’s future potential. For this reason, many startup founders and co-founders rely heavily on unit economics in the early stages of business development to measure their overall market sustainability. How to Calculate and Analyze Unit Economics Method 1: Define Unit as “One Item Sold” If a unit is defined as “one item sold,” then you can determine unit economics by calculating the contribution margin, which is a gauge of the revenue amount from one sale minus the variable costs associated with that sale. The equation is expressed as: Contribution margin = price per unit – variable costs per sale. Method 2: Define Unit as “One Customer” If you choose to define a unit as “one customer,” then the unit economics is determined by a ratio of two different metrics: Customer lifetime value (LTV): how much money a business receives from a given customer before the customer “churns” or stops doing business with the company Customer acquisition cost (CAC): the cost of attracting a client Therefore, the equation that produces your unit economics is: customer lifetime value divided by customer acquisition cost (UE = LTV/CAC) How to Model Customer Lifetime Value Method 1: Predictive LTV Predictive LTV helps you forecast the average customer is likely to act in the future. The formula for measuring predictive LTV is: Predictive LTV = (T x AOV x AGM x ALT) / number of customers for a given period T (average number of transactions): The number of total transactions divided by a given time span, thus determining the average number of transactions in that period. AOV (average value of an order): AOV is determined by dividing the total revenue by the number of orders, resulting in an average monetary value of each order. AGM (average gross margin): AGM is calculated by deducting the cost of sales (CS) from the total revenue (TR) in order to determine actual profit. The equation to determine gross margin is: GM = ((TR-CS) / TR) x 100. ALT (average lifetime of a customer). ALT is equal to the churn rate figure divided by 1. The churn rate is determined by taking the number of customers at the beginning of a given period (CB) and measuring it against the customers left at the end of the period (CE). That equation is expressed as: Churn rate = ((CB-CE)/CB) x 100. Method 2: Flexible LTV Flexible lifetime value helps you account for potential changes in revenue. This is particularly useful for new businesses and startups, which are likely to undergo changes as they grow and develop. The formula for measuring flexible LTV is: Flexible LTV = GML x (R/(1 + D – R)) GML (average gross margin per customer lifespan): The amount of profit generated by your business from a given customer in an average lifespan. This is measured by the equation: Gross Margin x (Total Revenue / Number of Customers During the Period). D (discount rate): Discount rate measures the rate of return on investment. R (retention rate): Retention rate is determined by measuring the number of customers who repeatedly made purchases (Cb and Ce) against the number of new customers acquired (Cn), expressed in the equation: ((Ce – Cn) / Cb) x 100. How to Analyze the Cost of Acquiring New Customers Every new business encounters the hurdle of acquiring new customers. The cost of acquisition (CAC) is an essential metric for companies looking to accurately determine how much they are spending in order to obtain a new customer. The formula is: CAC = (sales and marketing costs / number of acquired customers) Your LTV to CAC ratio can help you determine whether the building blocks of your marketing efforts are strong or need to be adjusted. If your CAC is less than your LTV, it indicates that your business is strong. If the two metrics are equal, it likely highlights a stagnant business. If your CAC is greater than your LTV, you are looking at a financial loss. FAQs Why use unit economics? Businesses use unit economics to measure the profitability of each customer they acquire and their overall financial performance. Unit economics enables businesses to identify and address inefficiencies and make informed decisions on pricing, marketing, product

The term mortgagee was firstly well-defined by the Transfer of Property Act, 1882. Since time immemorial it is seen that the property whether it be money, real estate, or the animal is kept as a mortgage during any financial crisis. In today’s time, those property is kept in the hands of the financial institution as security or the loans and that type of loan is knowns as a Registered mortgage loan. Loan and Mortgage Loan A loan is an amount of money that one or more than one individual or; companies borrow from banks or; any other financial organizations to economically manage the scheduled or unplanned events.  However, after this, the borrower incurs a debt, which he has to pay back with interest within a given period. A mortgage refers to the method of offering something as a guarantee or security in contradiction to a loan. A mortgage loan can be used to buy or build a house or refinance a property. Refinancing means getting a new loan for a property although the original loan is still being paid. It is usually done to get a loan with better terms. A mortgage loan is a loan used either by purchasers of tangible property to increase funds to purchase real estate or; by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. This kind of loan is taken either to buy or; build a house or; refinance a property. Refinancing refers to getting a new loan for a property while the original loan is still unpaid. Meaning of Registered Mortgage A registered mortgage is a type of loan in which the mortgagor (borrower) willingly gives all the rights to the bank over the property in case the person is unable to make the repayment of the loan or if found as a loan nonpayer. A registered mortgage is also commonly known as a Deed of Trust.  Further, with the registered mortgage, the bank has extreme rights over the property and in case of failure to repay the loan in the given period to the bank, then such property is transferred to the bank. However, after this, the banks will have all the control over the property mortgaged. Equitable Mortgage and Registered Mortgage An equitable mortgage has come from the word equity and is a type of financing planning under which the mortgagor (borrower) and the mortgagee (financial institution like banks) mutually decide on the terms and conditions of the mortgage loan. Further, in such type of financing, the government body or any other third party abstains from envelopment. Following are the key difference between Equitable Mortgage vs. Registered Mortgage: Parameters Equitable Mortgage Registration Mortgage Process Buying stamp paper is mandatory Need to contact the office of the sub-registrar Affordability Less Expensive in comparison Slightly more expensive Registration No registration needed Registration is needed Cost Involved The cost of stamp duty is either 0.1% of home value or 0.2% Need to spend 5% of the home value  Lender’s Rights In case of default, the financial institution takes over the mortgage property and auctions it to recoup its loss. In case of default, the mortgaged property is transferred to the financial institution and they have the right to do whatever they want to do. They can use or sell it. Risk If compared to a registered mortgage, an equitable mortgage has a higher risk. It provides security to both borrowers and lenders. It is risk-free. Registered Mortgage Process A registered mortgage deed is signed between the borrower, lender, and the registrar at the sub-registrar office. A registered mortgage is registered in the records of the registrar. Further, the registered Mortgage borrowers must approach the Sub-Register office. This registration is mandatory and is more expensive as compared to an equitable mortgage. Following are the steps to check the status of the mortgage of such property:  At first visit the official website of CERSAI at https://www.cersai.org.in/CERSAI/home.prg. Click on the ‘Public search’ tab. On-screen the options will appear; Asset-based search, debtor-based search, AOR Based search, search report. Click and see the Status. FAQs What is a registered mortgage? A registered mortgage is a legal document that grants a lender a security interest in a property owned by a borrower. It is registered with the appropriate government authority, usually a land registry or a similar institution, to provide public notice of the lender’s claim on the property. How does a registered mortgage work? When a borrower takes out a loan secured by a registered mortgage, they pledge their property as collateral to the lender. If the borrower defaults on the loan, the lender can foreclose on the property and sell it to recover the outstanding debt. What are the benefits of a registered mortgage for lenders? Registered mortgages provide lenders with a legal claim on the borrower’s property, which reduces the risk of lending. It allows lenders to foreclose on the property if the borrower defaults, providing a means to recover the outstanding debt. 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Relationships between startup founders are among the most complex you will experience in life. For a startup to be successful, the foundation established by the early founder dynamic must be capable of withstanding immense pressure. When I speak to entrepreneurs about their founder relationships and consider my own experience, I find that the subject matter of tough conversations is often similar, but the magnitude of difficulty is driven largely by when they happen. I recommend founders have tough conversations at the earliest stages of their startup. The process helps bond the founding team and ensures that when challenges do arise, ground work has already been laid for the business to make the best possible decisions.  Founder Identity vs. Role Identity When you work on a startup for many years, your status as a founder becomes core to your identity. The word founder evokes characteristics like leadership, ambition, independence, creativity, and success. Founder status is a major part of who we are and it will stick with us even after our startup finishes its independent journey, regardless of outcome. Even though I’m now a venture capitalist, I still think of myself as a founder and an entrepreneur — it is core to who I am. A key challenge arises when we conflate Founder Identity with Role Identity (and title). A common scenario is when a startup outgrows a founder’s experience level in a particular role and seeks to hire above them. For the organization, that’s a great thing because it means that the business is growing. And even though the idea of doing whatever it takes to help your startup succeed is intuitive to a founder, this particular case can trigger feelings of betrayal, failure, inadequacy, and frustration. This happens when we’ve conflated our Founder Identity with Role Identity. No matter how your title or the nature of your work changes over time, you will always be a founder. Founder Identity vs. CEO Identity During a period of sustained difficulty at Looksharp I called a board member and asked him if we should consider hiring another CEO. He said no, but in broaching the subject I was acting as a founder whose obligation was to consider any possible way of helping the company, even if it meant removing myself from the top job. CEOs tend to scale more easily than founders in other roles because the job doesn’t require domain specialization in the same way. The CEO has the benefit of being able to surround themselves with more experienced executives. That strategy breaks down pretty quickly, however, if members of your executive team are equally inexperienced. In either case, when an organization decides to recruit somebody with more experience to manage a founder’s domain, it’s actually a huge opportunity to help the company leap forward and accelerate your professional learning curve. You get to either level up your game by learning from the best or think about contributing to a totally different part of the organization that interests you. If you think about it, flexibility in your role aligns perfectly with the founder’s obligation to contribute in the greatest way possible to the overall success of the company. Can you tell from the beginning whether a Founder can become a successful CEO? When starting, as a founder you are the decision-maker and the employee doing most of the things by yourself. You don’t need sophisticated visions, strategic plans, roadmaps, – it is all in your head. Your focus is developing the right product, finding the right market (and recruiting the close team and finding the financial resources. Then at the moment, the company starts shipping the first products or having the first clients and you are not any more confused about your business model, your job becomes completely different. It is not only about the product anymore, it is about growth, clients, efficiency, cost management, recruitment, management. You start creating specialized functions, systems, and structures to manage the growing business. You have to make sure that the growth doesn’t happen at the expense of the profit and that you are managing costs as well as the sales. Then you have to resist the temptation of doing things yourself and delegate to the experts and teams without interfering in the process. No more doing! So difficult for a founder! After all, they can do it better! But they have to let go. This transition is the turning point! What a complexity! As a CEO they have to show the stars and lead the way. The job becomes fundamentally different. And requires a completely new set of skills. To better explain this last point, I thought to share what I believe should be the roadmap and compass for the founder CEO – the job!  Unlike the other roles, the role of the founder CEO is not always well defined. So, they create it consciously sometimes unconsciously, often by experimenting and going with the flow. The first thing the founder CEO should ask is « What is my job »? « Where should I focus my time and my energy »? How would I achieve my major goal: creating a great company (however this translates in tangible terms)? When I start coaching founders one of the first things I check out is their last past month’s agenda to find out how they are spending their time. Do they focus on their core business or are they doing other things? Of course, for certain dimensions below, they are not the « doer », just the « architect » and the final decision-maker. They have to make sure that all those variables of the performance below are aligned to the strategy, mission, and vision and assure coherence in between them. After all, it is their responsibility to make the system work and their fault when things go wrong.  Structural elements Mission Vision Strategy  The business model Culture Objectives Operations (including all the functions) The performance (balance cost-profit-growth-customer experience) The performance management indicators  The organization structure The Team &