Ad glossary
Unit economics
The revenue and costs tied to a single unit, such as one order or one customer, used to judge whether a business model is profitable.
Unit economics describes the revenue and costs tied to a single unit of your business. In ecommerce, the unit is usually one order or one customer. If each unit makes money after its direct costs, the business can grow by adding more units; if each unit loses money, growth only makes the losses larger.
Per-order view
Start with a typical order:
- Selling price or AOV
- Minus cost of goods
- Minus shipping, packaging and fulfilment
- Minus payment and platform fees
- Minus an allowance for returns
- Minus the ad cost to acquire the order (CPA)
Worked example (made-up numbers): an order of $60 has $18 product cost, $7 shipping, $2 in fees and a $3 returns allowance, leaving $30. If the ad cost per order is $22, the order contributes $8 towards fixed costs and profit. Model your own numbers with the dropshipping profit calculator or the profit margin calculator.
Per-customer view
For brands with repeat purchases, compare LTV with CAC. A customer who loses money on the first order may still be profitable over a year. The LTV:CAC calculator helps compare the two.
Why it matters
- It shows the maximum you can afford to spend on ads per sale.
- It highlights which costs to work on first, such as shipping or product cost.
- It makes pricing, discount and bundle decisions easier to evaluate.
Revisit unit economics regularly, since supplier prices, shipping rates and ad costs change over time.
Last reviewed Oct 27, 2026