February 4, 2026
Hi Everyone,
Unfortunately, it's more than possible to grow revenue and burn cash at the same time. The problem is that if you’re only looking at your company-wide averages, they probably won't pinpoint the issue.
So where's the leak?
If you're a founder, CEO, or business leader with a diversified offering, understanding your unit economics will give you the perspective you need. Simply put, unit economics measure profitability at the individual level: per product, per service, per customer type.
Instead of relying on company-wide averages (which hide problems), you get a clear view of what's working and what isn't.
Armed with that information, you can double down on high performers and fix or phase out the segments dragging down your margin.
Today, we're walking you through a quick check to find out what's broken. Before you start, Mercury's guide on unit economics is worth a read – it covers what each metric means and what "healthy" looks like for your model.
A quick diagnostic to find the problem
Step 1: Segment your data
Pull your customers into groups: by acquisition channel, by cohort, by customer type. Don't look at company-wide averages because an “average” view will hide the problems.
Step 2: Score each segment
For each group, calculate three numbers:
- Contribution margin: Are you making money per customer after variable costs?
- CAC payback: How many months until you recover what you spent to acquire them?
- Retention: What percentage stick around or buy again?
You'll see differences fast.
Step 3: Find the outlier
Look for the segment that's way below the others. That's the problem to fix.
Step 4: Now, you can figure out what's causing it
Pricing: Are you charging enough? Even a 10% price increase goes straight to profit if it doesn't hurt retention.
Cost of goods: Are variable costs eating your margin? Look at fulfillment, support, payment processing – anything tied to each sale. Any opportunities for consolidation, elimination, down-sizing?
CAC efficiency: Are you spending too much to acquire? Check conversion rates by channel. Going from 2% to 3% conversion on the same spend cuts CAC by a third.
Activation: Are new customers actually using the product? If onboarding is broken, you're paying to acquire people who never spend.
Retention: Are customers sticking around long enough to pay back? Cutting monthly churn from 5% to 3% can double average customer lifetime.
Once you know what's broken, you know where to focus.
Try this today
Open a spreadsheet and segment last quarter's customers by channel or type. Calculate contribution margin, CAC payback, and retention for each. Circle the worst performer and then run through the five levers in Step 4 to figure out what's causing it.
Go deeper
👉 First Round Review: A pricing framework to build products with scalable unit economics
👉 Phoenix Strategy Group: 9 pricing psychology tips for better unit economics
👉 Kruze Consulting: Understanding unit economics for startups
Coming up tomorrow
Tomorrow, we will look at how to run a pre-mortem. We'll walk through the 30-minute exercise that surfaces risks while you can still do something about them.
Thanks for reading.
P.S. What's the biggest thing stopping you from running the unit economics diagnostic today? Time? Data? Not sure where to start? Reply and tell us – your answer helps us write better issues.