Used in: CMG analysis, platform analysis, Week 20
What It Is
Unit economics is the financial performance of a single unit of a business one restaurant, one customer subscription, one delivery, one transaction. It answers: does the fundamental transaction or unit of value creation make money, and does the math hold as the business scales?
Why It Matters
A business can look profitable at the aggregate level while individual units lose money — if it has enough fixed costs spread over a large enough base. Unit economics strips that away. If the economics of a single restaurant, a single customer, or a single transaction do not work, adding more restaurants, customers, or transactions makes the problem larger, not smaller. Before a business scales, its unit economics need to work.
Where to Find It
Different metrics for different business types. For restaurants: restaurant-level operating margin. For subscription businesses: customer lifetime value vs. customer acquisition cost (LTV/CAC). For marketplaces: contribution margin per transaction. For retailers: gross margin per store or comparable store sales productivity. All of these measure the same thing at the unit level.
Real Example
Chipotle, the expansion question. The bull case for CMG reaching 7,000 locations requires new stores to open with unit economics that match or exceed the historical base. If new stores in smaller markets open at lower AUVs or take longer to reach profitability, the expansion destroys value even if the restaurant count grows on schedule. Unit economics at new stores is the leading indicator of whether the growth thesis holds.