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Break the wheel of misfortune with unit economics in your online business!
6 min read
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by helen parf
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Are you attempting to construct and track email campaign reports? Email marketing is one of the most effective methods for reaching your audience. In contrast to social media, SEO, and PPC, email marketing provides direct access to your audience at any time.
Plus, you won't be susceptible to algorithmic changes that could affect the success of your advertisements. But for the best results, you must monitor your progress toward your objectives. So instead of blabbering about how email marketing is essential, today we will dissect each step you have to carefully consider when creating, maintaining, and presenting an email campaign report.
Have you played this part yet?
As an experienced email marketer, you may already know you are responsible for reporting your email campaign. It’s an integral part of your marketing strategy, as every marketing team member must understand how to present their reports and what metrics they should prioritize.
This is especially true for those marketers who have already submitted an email report to their CEO or whose data did not synchronize with the other departments. In other instances, the presentation can be sent at an awkward time. So how exactly can you actually simplify your results and emerge victorious?
The answer is: unit economics calculated correctly for your online business.
What is Unit Economics?
Unit economics is a method of economic modeling that determines the profitability of a business by calculating the profitability of a business unit (a unit of product or a customer). It is effective for digital projects and especially online stores (of any kind).
The growth and success of a business depend on the decisions that the manager makes. To avoid making a mistake, it is necessary to think one step ahead. Unit economics is one way to make informed conclusions about possible success or failure. With certain calculations, you can determine where your company is headed - bankrupt or growing.
Why do you actually need it?
Unit economics allows you to see how much you earn from the flow of clients - the flow consists of units, each of which brings a certain profit (or not). If you calculate how much each unit brings in and what expenses the company incurs in this case, you can calculate what profit you will get from a particular flow. Based on the calculation results, it becomes clear whether it is worth scaling the business, attracting investors, increasing the flow, or the margin of the transaction.
It is essential that not only the client who has paid can be called a unit (the client - the accepted definition of a unit is first of all for SaaS projects). For example, it will be a new user in mobile applications and games. And for an online publication or service - a subscriber (newsletters, product demos). You can also consider a unit of product as a unit.
How can you benefit from the Unit Economy?
- Determine the effectiveness of the primary sales channels.-Assess the prospects of the company, and understand where it is going.
- Find the break-even point and calculate the return on investment.
- Determine how many customers you need to attract; know how much each will cost.
- Actually, tell investors about the prospects of the business.
How to calculate unit economy?
Calculations for Different Businesses
Any investor is interested in an accurate analysis of the business he invests in. Businessmen need it to evaluate the effectiveness of strategic decisions. Executives use it to develop further strategies and to navigate the marketplace intelligently. In the early stages of any business, it is vital to understand its overall health and viability. Unit Economics gives you that opportunity.
To assess your business effectiveness, dozens of metrics, key indicators, and parameters need to be considered. Unit Economics aims to simplify all of this by measuring profitability at the "unit" level. The unit-economy approach to calculating it depends on what it is taken as.
Unit as "Goods Sold"
If a unit is defined as "a single sold product," then you can determine the unit economy by calculating the marginal profit, which is the revenue from one sale minus the variable costs associated with that sale:
Margin = (Average Price - COGS)/Average Price
Suppose a fashion owner decided to calculate the marginal profit. Each piece of cloth that they sold is a unit or unit. Its value determines the products and resources needed to prepare them, and then they use the formula from above to calculate it.
A practical example
Let's take the example of a company that specializes in the fashion world industry. A company in this industry calculates its revenue by collecting data on the number of average daily users (DAU), the executives calculate the total amount of sales attracted during that period. Let's say a company has 5,000 users and has collected $1500. Thus, the unit revenue is 30 cents per user per day.
The cloth stakeholder now calculates its costs. These include material costs, worker costs, and advertising costs to attract users. Suppose advertising costs $2 per thousand impressions (CPM). How many impressions does the company pay for before it gets a customer? Let's assume 1,000 impressions. Thus, the cost per install (CPI, that is, the cost of attracting a customer) is $2. In order for the company to make a profit, the user must be active for at least 20 days. (20 days * 30 cents / day = $6).
Where can you actually grow from this?
There are few metrics that can help you quickly diagnose business problems and take an opportunity for its growth. Among the many, it is mostly User Acquisition, Average Sales, Conversion, Marginality, and the Number of Repeat Purchases. If you pay attention and work with each of them, you can make the following management breakthroughs:
- Attract more users - raise User Acquisition.
- Decrease the number of inactive users or those who didn’t make a purchase.
- Add more value to the product to raise the average check.
- Raise conversions and repeat purchases - work with the user activation.
- Increase business margins by procuring products at a lower price or reducing operating costs.
Now you know the metrics you can affect. But working with all the metrics at once is not profitable-you need to find one that will have the maximum effect.
Growth opportunities are also hidden in those areas where the marketing team is usually lacking competence. For example, if the team is good at marketing and knows how to attract users cheap or almost free, they may have problems with sales conversion. Thus, if the customer conversion is less than 1%, it will be your growth opportunity. In other cases, you need to count the unit economy and see which part of your marketing funnel is lacking the necessary efforts.
In conclusion
Without reporting on your email efforts, success will be challenging to achieve. Yes, it seems laborious, particularly for email marketers, but the benefits are substantial. By understanding what you're monitoring, creating easy-to-read reports, and utilizing the proper technologies, you'll set your email campaign up for definite success.
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