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The unit economics component card
Map revenue, variable cost to serve, acquisition expenditure, and recovery timing to evaluate commercial viability.
| Component | Definition and boundary | Metric formula | Failure mode if miscalculated | Governance remedy |
|---|---|---|---|---|
| Atomic Unit | Fundamental economic object | Contracted customer account | Inconsistent unit definition across quarters | Standardize definition by customer tier |
| Unit Revenue (ARPU) | Net recurring cash inflow | Annualized Contract Value (ACV) | Booking value confused with cash collected | Deduct discounts, refunds, and uncollected bad debt |
| Cost to Serve (CTS) | Variable hosting, APIs, CS labor | Cloud infrastructure + APIs + Support | Variable costs hidden in corporate SG&A | Strict allocation of customer-facing operational labor |
| Contribution Margin % | Net cash per revenue dollar | $(\text{ARPU} - \text{CTS}) / \text{ARPU}$ | GAAP gross margin substituted for contribution | Calculate contribution margin at account cohort level |
| Acquisition Cost (CAC) | Fully loaded commercial cost | Total Sales & Marketing / New Logos | Omitting sales management, travel, and tooling | Include fully burdened compensation and overhead |
| Payback Horizon | Months required to recover CAC | $\text{CAC} / (\text{Monthly ARPU} \times \text{CM}\%)$ | Payback calculated on gross revenue | Enforce contribution cash payback threshold (< 14 months) |
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Reference & Evidence
Source: Author's commercial governance framework grounded in customer valuation and profitability literature from Gupta et al. (2004), Mulhern (1999), and Reinartz and Kumar (2000).