Scaling unit

The key entity in unit economics is the scaling unit. In different situations, it is understood to mean different things, but since roughly the early 2000s, it has been commonly understood as a potential customer, specifically an entity (a person or a company) that has learned about our product and could potentially buy it, though whether they actually purchase it depends on the product itself.

Why is the scaling unit a potential customer and not an actual customer? Because unit economics is directly tied to the process of business scaling, and our efforts in this process are responsible for generating potential customers for the business. At the same time, we know for certain that each potential customer costs us LTC, while we earn from actual customers, receiving CLTV from each.

However, these two entities, LTC and CLTV, exist in different realms: LTC pertains to the world of potential customers, while CLTV pertains to the world of actual customers. This is why the coefficient C₁ is used, which connects these two worlds, so that LTV—the gross profit from a customer per potential customer—is calculated as LTV = CLTV × C₁