If a manager does not understand the specifics of unit economics, he may make certain frequently identified mistakes. Let's consider some of them in more detail.
Confusion between real fixed costs and variable costs
An important part of getting the right results is identifying the costs that are relevant to the unit analysis. Remember the simple rule: unit economics uses only variable costs. It can be difficult for entrepreneurs to separate this type of costs from fixed ones.
Economic literature suggests focusing on the following main difference between variable costs: they are directly related to sales. Examples include the cost of production, packaging and delivery costs, etc.
When making calculations, it is twitter database necessary to take into account all variable costs that are relevant to the unit under study.
Absolute numbers matter
Another common mistake is neglecting absolute values.
When conducting unit economics, it is important to take into account as many metrics as possible.
Errors in Unit Economics Calculations
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Scaling a Losing Business Is Bankruptcy
Let’s look at a specific example. Bento is a 2015 startup that delivered adaptive bento boxes and raised $2 million in seed capital in San Francisco. A few months into the operation, the founders realized that they were spending 30-40% more money than they had initially expected.
Conducting a key performance analysis helped to understand the situation: Bento was selling its boxes for $12, although each cost $32 to produce. Taking into account the costs of kitchen staff, equipment, ingredients, etc., Bento was losing $20 on each sale. After changing the business model and cutting costs, the company was able to achieve minimal profitability.
Don't expand a loss-mak