Business Math 2: pricing models, cash flow and simple forecasts

01

Unit economics: what one item and one customer earn

In simple words

Unit economics asks: for one item, or one customer, do I earn more than I spend to get them? If one unit does not make sense, a thousand units will not either.

Before this course: Business Math Basics (course 2.31). You should already know profit, markup vs margin, break-even and simple vs compound interest. We use them here, we do not repeat them. For a full financial plan see course 2.3.2, and for pricing practice see course 2.4.2.

Key facts

Contribution per item = price - variable cost per item. (This is the same number you used for break-even in course 2.31.)
Contribution margin % = contribution per item / price x 100. It is the share of each sale left to pay fixed costs and then profit.
Value of one customer (simple version) = contribution per order x number of orders. Count only orders you can show from real data, not hopes.
Acquisition cost = what you spend to win one new customer (ads, free samples, discounts). Divide your marketing spend by the number of new customers it brought.
Payback in orders = acquisition cost / contribution per order. Round up to a whole order.
These are simplified classroom versions. Real businesses also count fixed costs, refunds and time.

Example (candles, CA$)	Working	Result
Price CA$18, variable cost CA$7	18 - 7	contribution CA$11
Contribution margin %	11 / 18	61.1%
Customer buys 3 times	11 x 3	CA$33 contribution
Cost to win the customer CA$20	33 - 20	CA$13 left after 3 orders
Payback in orders	20 / 11 = 1.8, round up	2 orders

Step by step

Write the price and the variable cost of one item.
Subtract to get contribution per item. Example: 18 - 7 = CA$11.
Divide by the price for margin %: 11 / 18 = 61.1%.
Write the average number of orders per customer from your records (for example 3).
Multiply: 11 x 3 = CA$33.
Write what it cost to get that customer (for example CA$20) and subtract: CA$13.
Divide the cost by contribution per order and round up for payback: 2 orders.
Check: after the payback number of orders, the customer has paid for their own acquisition cost.

Watch on YouTube

Contribution margin explainedThe Finance Storyteller · YouTube · youtube.com

Videos by other creators on YouTube, for reference. They are not made by or affiliated with The Future Market.

LESSON 01Unit economics: what one item and one customer earn

LESSON 01 / ANIMATED LESSON / AI VOICE00:00 / 01:10

Voice

Read the video script

[Host] "Before you grow, check that one sale makes sense."
[Text on screen: Price 18, cost 7, contribution 11] "A candle sells for 18 and costs 7 to make. That leaves 11."
[Text on screen: 11 / 18 = 61%] "Eleven out of eighteen is a contribution margin of 61 percent."
[Text on screen: Win a customer for 20, they buy 3 times = 33] "Win a customer for 20 dollars, and three orders bring back 33."
[Host] "If one unit does not work, more units will not fix it."

Try it now

Use a product or service you could sell. Find the contribution per item, margin %, the value of one customer over three orders and the payback in orders. Write one sentence saying whether the numbers look healthy.

ClaudeStuck? Copy a ready-made prompt for Claude

Copy this, open Claude, paste it, and Claude will walk you through the lesson step by step.

For a grown-up: Claude is for adults (18+). Copy this, paste it into Claude, and use the answer to explain the lesson to your child.

I'm learning "Business Math 2: pricing models, cash flow and simple forecasts" on The Future Market. Lesson 1: "Unit economics: what one item and one customer earn".

What the lesson teaches:
- Contribution per item = price - variable cost per item. (This is the same number you used for break-even in course 2.31.)
- Contribution margin % = contribution per item / price x 100. It is the share of each sale left to pay fixed costs and then profit.
- Value of one customer (simple version) = contribution per order x number of orders. Count only orders you can show from real data, not hopes.
- Acquisition cost = what you spend to win one new customer (ads, free samples, discounts). Divide your marketing spend by the number of new customers it brought.
- Payback in orders = acquisition cost / contribution per order. Round up to a whole order.
- These are simplified classroom versions. Real businesses also count fixed costs, refunds and time.
- Example (candles, CA$) - Working - Result

The exercise I'm working on:
Use a product or service you could sell. Find the contribution per item, margin %, the value of one customer over three orders and the payback in orders. Write one sentence saying whether the numbers look healthy.

I'm stuck. Please:
1. Explain the main idea in plain, simple words with one everyday example.
2. Walk me through the exercise one small step at a time. Ask me what I've done so far before giving the next step.
3. Don't just give me the final answer. Help me do it myself, and check my work when I share it.

I'm a parent helping my child (about 8 years old) with a lesson called "Unit economics: what one item and one customer earn" from the course "Business Math 2: pricing models, cash flow and simple forecasts".

Here's what the lesson says:
Unit economics asks: for one item, or one customer, do I earn more than I spend to get them? If one unit does not make sense, a thousand units will not either.

The activity:
Use a product or service you could sell. Find the contribution per item, margin %, the value of one customer over three orders and the payback in orders. Write one sentence saying whether the numbers look healthy.

Please explain this so an 8-year-old understands: short sentences, a fun everyday example, and no hard words.
Then give me 3 simple questions I can ask my child to check they understood, and a way to do the activity together, one tiny step at a time.

Open Claude

Sources

Well-known textbook definitions of contribution margin and unit economics. These are teaching versions of the formulas; no statistics are used in this lesson.

My notes

I learned this

02