Why Unit Economics Outlast Growth Metrics
When capital is cheap, any chart can look heroic. When markets tighten, only businesses with positive unit economics breathe easy.
I didn't start my career fixated on the bottom line, but on sales.
I got into the tech industry in 2010, selling "the internet" over the phone to people listing properties in newspapers. As my career progressed from sales to digital marketing, product, and analytics, I focused on customers, retention curves, conversion paths, touchpoints and how customers move through the systems we built.
Finance was important, certainly, but it seemed like a secondary concern belonging to someone else. For years, I believed Customer Lifetime Value could bridge that gap.
CLV appeared perfect: one clean number tying acquisition, retention, and profitability into a single story. I became known as the "CLV lady," constantly evangelizing that optimizing for lifetime value would naturally lead to business success.
This belief was comforting, and like most comforting ideas, it glossed over complexity I didn't yet understand.
Customer Lifetime Value isn't the one number to rule them all.
CLV is a layered approximation dependent on assumptions about churn, cost-to-serve, margin stability, and customer behavior, all of which continuously shift.
If anything, today, and for some years now, I look at CLV as one of the most confusing and dangerous metrics one can work with. But unpacking that would require it’s own newsletter edition.
So, creating these perfect growth scenarios in spreadsheets with northstars like CLV is easy, but reality introduces quite the complications. Dealing with fulfillment backlogs, escalating service costs, and acquisition challenges requires confronting realities beyond theoretical models and internet metric calculation formulas.
The Silos of Business Metrics
My experience in retail and ecommerce made these issues impossible to ignore.
I watched teams celebrate sales spikes, brag about ROAS, and chase bigger and bigger revenue targets, while fulfillment costs quietly became unbearable, customer service struggles escalated, and CAC eroded margins nobody wanted to discuss.
Metrics exist(ed) in silos. Marketing owned revenue numbers, operations managed fulfilment crises, finance monitored the P&L. Everyone acted as if these were separate realities. The few people connecting them were usually finance leads, forced into becoming corporate pessimists simply because they identified problems while others admired the company's “momentum”.
When data “looks” good, it's easy to mistake motion for survival.
Watching revenue climb, CAC hold steady, and usage metrics increase creates the impression that momentum guarantees progress.
And for a while, I believed this too. Trusting the surface becomes natural when the surface looks smooth. It’s easy and there's a strong temptation to believe that momentum alone guarantees future success.
But what I came to learn over the years is that when it comes to growth… It's almost never like that.
Business Viability: Unit Economics
Sales figures only reveal incoming money, not acquisition costs. Gross margin provides a clearer picture by showing what’s left after covering direct production costs. Even more painfully revealing is the contribution margin, which indicates whether scaling your business imrpoves profitability or gradually eats at it.
Those Black Friday figures everyone likes to brag about on social can be undermined when fulfillment problems substantially reduce quarterly operating margin. Similarly, impressive ROAS mislead when new customer support costs exceed their lifetime value.
Companies can excel in growth metrics while failing financially, and this goes often undetected until cash reserves diminish.
During periods when capital flows freely, any growth chart can appear impressive. When markets tighten, only businesses with positive unit economics remain comfortable. The essential question shifts from "Is it growing?" to "Is it strengthening?"
The focus should move beyond tracking revenue increases to monitoring profit margin trends because it helps you recognize mounting underlying pressures:
- service demands outpacing revenues
- infrastructure straining under higher than budgeted retention rates
- operational vulnerabilities that intensifies with scale
Because, in the end, scaling flawed business models doesn't solve fundamental problems, it only hides them until eventual collapse becomes more severe and difficult to manage.
The WeWork Cautionary Tale
WeWork case study is a prime example of unit economics gone bad.
A commercial real estate company that expanded rapidly with an ultimately unsustainable business model. Despite achieving massive growth and huge valuations (reaching $47 billion), WeWork operated with fundamentally flawed unit economics.
They secured long-term leases, invested in expensive renovations, then subleased spaces as flexible workspaces on shorter terms, often at rates insufficient to cover total expenses.
Despite impressive growth metrics and a compelling narrative about workplace transformation, WeWork BLED money (approximately $1.9 billion in 2018).
Their 2019 IPO attempt revealed these serious financial problems, resulting in a failed public offering, founder Adam Neumann's departure, and a dramatic devaluation.
This turned WeWork into a textbook example of prioritizing growth and expansion over sustainable unit economics.
And the reality is that some companies deliberately accept lower margins for “strategic purposes” like entering new markets, establishing competitive footholds, or securing positions expected to yield future returns. Such calculated risks only make sense when recognized and managed appropriately.
Danger emerges when surface growth masks underlying fragility, when teams misinterpret weakness as strength because performance indicators appear to be favorable.
This environment breeds wishful thinking at the expense of those handling the consequences.
As corporate finance professor Aswath Damodaran puts it:
"Strategic decisions often mean: The numbers don't fly, but I really, really want to do this".
This is the general pattern where company leadership disguises greed and control obsession as “strategy”. And I am sure anyone reading this now, can think of some more examples of this.
Why Unit Economics Matter
While WeWork shows the dangers of scaling flawed economics, Etsy's 2017 pivot demonstrates the alternative path. Facing pressure from investors and struggling margins, Etsy made the difficult decision to halt expansion and cut costs. Under new CEO Josh Silverman, they ruthlessly focused on contribution margin, going from 19% to 26% in just 18 months.
The company resumed growth only after establishing that the underlying economics worked. Their market value increased dramatically in the years that followed, because they didn’t chase growth at all costs and built a foundation that could sustain it. Etsy proved that financial discipline scales better than hype.
For digital analysts, marketers, and professionals across organizational roles, developing financial literacy reveals the broader system in which businesses operate: the fundamental forces determining long-term viability beyond dashboard indicators… or toxic-data-positivity.
Understanding unit economics means recognizing when sales increases genuinely benefit the business versus postponing inevitable problems.
This requires understanding when high retention stretches infrastructure beyond sustainable limits, when CAC outweighs CLV, and when growth pursuit overshadows essential operational investments.
When profit margins disappear, service costs exceed customer revenue, and financial reserves deplete, “impressive” engagement metrics become irrelevant as the business declines.
While many analysts focus exclusively on measuring growth, the more valuable skill lies in assessing growth viability. This means:
Identifying potential problems before they become crises
Recognizing when growth increases organizational strain rather than building strength
Distinguishing between scaling that improves resilience and scaling that accelerates decline
The ultimate goal is developing the ability to see business fundamentals beyond surface indicators, present during apparently successful periods.
When external conditions change: growth slows, markets become more competitive, and stakeholders grow cautious, businesses are judged primarily on financial strength.
And true financial strength emerges from sustainable economics, not growth at all costs.
If you want to learn more about Unit Economics and how to build the right skills to unpack true business growth, me and Timo Dechau are putting together a course called Strategic Analytics. In this course we aim to show you the connection between Business Models, Unit Economics and Measurement.
We hope this course will give you the clarity, structure, and tools to work at a more strategic level, so your analysis leads to decisions.
Until next time, stay curious and exercise critical thinking at all times :)
X
Juliana
I can cry how much I like this!
These are feelings more personal every post. Helps with my book lernen. But on the technical side, for folks like me, it'd be extra nice to have a pull quote definition early in the post - especially if it's in the title. "Unit Economics."