Profit and unit economics

To calculate profit using unit economics, and especially to model it for the future, you must never use the formula Profit = CM – Fixed Costs, where CM is calculated through unit economics metrics.

This formula still appears in presentations by various speakers, lecturers, and people who don’t fully understand the essence of unit economics.

Profit is an entity from the world of finance, and it exists and is subject to the laws of the country where the business is registered. There are usually clear rules on how to calculate profit. 

Unit economics is a tool for product management that is not inherently subject to the time fragmentation accepted in finance. Specifically, unit economics metrics are not calculated monthly; they are calculated in cohorts, whereas finances, including profit, are calculated on a monthly basis. 

To use unit economics for modeling finances in monthly intervals, it is necessary to calculate all the cohorts that fall within the specified time interval and then use them to calculate the values of financial metrics. The formula for profit using unit economics metrics will be quite complex.