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Decoding the Jargon

Unit economics

Performance marketingTerm

The revenue and costs of one unit of your business, such as one order or one customer, worked out to see whether each unit makes or loses money.

Formula

Per order: price − product cost − shipping and fees − ad cost per order

Example

One online order for Meera brings ₹2,000. The clothes cost ₹600, shipping and packaging ₹100, payment fees ₹40 and the ad cost per order ₹500. ₹760 is left per order towards fixed costs.

How you'll hear it

“Before we scale, let's check the unit economics: are we making money on each order after ads?”

Don't confuse it with

  • Contribution margin: one line within unit economics, before ad cost.
  • LTV: CAC ratio: unit economics at the level of a customer rather than an order.

Related terms

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Sources

  1. Contribution Margin: Definition, Formula, and Example, Shopify
  2. What Is a Good LTV to CAC Ratio? How to Calculate It, Shopify, 2026

Checked 1 October 2026. Examples use a fictional business; figures are illustrative.

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