What a client costs.

Many companies decide how much to spend on advertising by gut feeling: "last month it was a hundred thousand, let's do the same." Then it turns out there are plenty of leads, but no more money in the bank. Or the opposite: the budget was cut out of caution and customers went to competitors, even though the company could easily have paid more for them.

Unit economics answers one question: how much the business earns from a single customer and what share of that money can be spent on acquiring them. Below we explain the calculation without complex terms and with simple examples.

What unit economics is and why marketing needs it

Unit economics is the calculation of income and costs per unit of the business, most often per customer. If one customer brings a profit, it makes sense to scale up promotion. If each new buyer costs more than they bring in, increasing the advertising budget will only increase the loss.

For marketing, this is the main benchmark. It lets you set a ceiling on the cost per customer in advance and check each channel against that bar, rather than against reports on clicks and reach.

What counts as a unit

The unit is chosen to fit the business model. For an online store it's usually an order or a buyer, for a subscription service a subscriber per month, for a dental clinic a patient with a full course of treatment. The main rule: choose one unit and calculate all metrics based on it, otherwise the numbers won't add up.

Which numbers you need for the calculation

For a basic calculation, five metrics are enough, and almost any company that keeps sales records has them:

• the average order value of one purchase;
• the margin, that is, the share of the order value left after deducting the cost of goods;
• how many times a customer buys over the entire relationship;
• the conversion rate from lead to sale;
• how much you spent on marketing over the period.

Average order value and margin

Revenue on its own says little. A company with an average order of ₽50,000 and a 10% margin earns ₽5,000 per sale, while a company with an average order of ₽20,000 and a 40% margin earns ₽8,000. The second one can pay more per customer, even though it sells cheaper. How to raise the first number is covered in our guide to increasing average order value.

Repeat sales and customer lifetime

Customer lifetime value is all the profit a customer brings while they keep buying from you. For a car service or a beauty salon it's many times higher than the first purchase; for an apartment seller it roughly equals one deal. If you have few repeat sales or don't track them, count only the first purchase: that way the estimate will be conservative.

How to calculate how much you can pay per customer

The maximum customer acquisition cost equals the profit the customer will bring, minus the profit you want to keep for yourself. The formula is simple: average order value × margin × number of purchases − desired profit per customer.

Let's take a hypothetical example. The numbers are made up for illustration; in your business they will be different.

If advertising brings in a customer for ₽4,000, you have a good margin of safety and can increase the budget. If it costs ₽9,000, each new buyer reduces profit, even as sales grow.

A buffer for fixed costs

The desired profit per customer should cover not only the owner's income but also rent, salaries and taxes. These costs don't depend on the number of customers, so they are spread across the planned sales volume.

Break-even point

The break-even point shows how many customers you need per month to cover fixed costs. It helps you understand at what sales volume the business stops operating at a loss, and to honestly assess whether that volume is realistic at the current acquisition cost.

From cost per customer to cost per lead

Ad accounts show the cost per lead, not per customer, so the ceiling needs to be recalculated. To do this, the maximum cost per customer is multiplied by the conversion rate from lead to sale.

In our example, the ceiling is ₽7,000. If the sales team closes every fourth lead into a deal, you can pay no more than ₽1,750 per lead. Improve conversion to every third lead, and the acceptable price rises to about ₽2,300 without any changes to the advertising. This leads to an important conclusion: sometimes it pays more to train your sales managers than to look for cheap traffic.

For this calculation to work, the source of every sale has to be known. Phone calls often fall out of the records, and this is where a substitute tracking number helps, as we explained in our article on call tracking.

How to compare promotion channels

Channels are compared against the same bar: how much a customer costs and how much profit they bring. Comparing by the number of leads is misleading, because leads from different sources convert into sales differently.

Search and social media advertising

Paid advertising brings customers quickly, and the cost of each one is visible right away. The downside is that you have to pay again for each next one. As competition in a niche grows, the cost per click rises, and the channel can go over the ceiling.

Search engine optimization

SEO requires investment up front, and customers arrive a few months later. On the other hand, rankings once gained keep bringing people in, and the cost per customer falls over time. That's why website SEO work is evaluated over a one-year horizon, not a month.

Social media

SMM works best where purchases repeat or decisions are made on emotion: food, beauty, home goods. For complex services, social media more often warms up the audience while another channel closes the deal, and this needs to be taken into account when splitting the budget. More on choosing customer sources in our piece on how to choose promotion channels.

Common calculation mistakes

Most mistakes have to do not with the formulas but with incomplete data. Here's what most often distorts the picture:

1. Only the advertising budget is included in costs, while payments to contractors, services and the marketer's salary are forgotten.
2. Profit is calculated from revenue without deducting the cost of goods.
3. Repeat purchases are estimated "by eye" without checking against the customer database.
4. Months with different seasonality are compared, and conclusions are drawn from a single period.

A separate trap is averages across the whole business. If you have expensive and cheap services, calculate them separately: one line of business may be feeding the whole company while another quietly operates at a loss.

Unit economics when choosing a contractor

The calculation is also useful when you're looking for a contractor. Before you order a website or order SEO, estimate how many customers the new channel needs to bring in to pay back the investment. This immediately filters out offers that don't add up financially.

Companies choose contractors in different ways: they browse directories of web studios, ask acquaintances for recommendations, study a web studio's website and its case studies. A good web development studio asks about your average order value and margin before it sends a commercial proposal. If web studio services are sold without a conversation about your numbers, you're being offered a process, not a result.

The same goes for promotion. Once you've decided to order SEO or order SMM, ask for a forecast in leads and cost per customer, not in rankings and followers. A contractor working in SMM should understand what cost per lead your business can sustain. When you need to order website development for specific sales goals, this calculation makes it easier to compare estimates and decide which web studio to order a website from.

When it's time to recalculate

Unit economics is worth recalculating at least once a quarter and after any noticeable change: purchasing costs went up, the cost per click rose, a new service appeared. The calculation takes an hour, while a mistake in budget planning can cost months of working at a loss.

If you want every ruble of marketing to be counted by this logic, at epic name. you can order integrated online marketing for your company or individual services: SMM, advertising, or SEO for a specific task. We work in Moscow and across Russia, calculate the cost per customer for each channel and propose a budget that fits your economics. Learn more about search engine optimization and other services on our agency services page.