Monthly Unit Economics Formula
Learn how monthly revenue, gross profit, gross margin, operating profit and customer acquisition cost are estimated from customer and cost data.
This calculation estimates a business's monthly unit economics using average active customers. It shows how customer movement, pricing, direct costs, acquisition spending and operating costs combine to affect estimated profitability.
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Monthly Operating Profit
Where:
Estimate the average number of active customers, calculate the gross profit generated per customer, then subtract acquisition spending and other operating costs.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| beginningCustomers - Beginning active customers | Paying active customers at the start of the month. | number |
| newCustomers - New customers acquired | Customers first acquired during the month. | number |
| churnedCustomers - Customers lost | Customers who stopped paying or became inactive during the month. | number |
| monthlyArpu - Average monthly revenue per customer | Average revenue earned from one active customer before direct service costs. | currency |
| monthlyCogsPerCustomer - Direct cost per customer | Variable monthly cost to serve one active customer. | currency |
| salesMarketingSpend - Sales and marketing spend | Monthly sales and marketing costs attributed to customer acquisition. | currency |
| otherOperatingCosts - Other operating costs | Other monthly costs, such as payroll, rent, software and administration. | currency |
Step-by-Step Calculation
Calculate ending active customers
Add acquired customers and subtract lost customers from the beginning customer count.
endingCustomers = beginningCustomers + newCustomers - churnedCustomers
Calculate average active customers
Use the average of beginning and ending customers as a simple estimate of customers served during the month.
averageCustomers = (beginningCustomers + endingCustomers) / 2
Estimate monthly revenue
Multiply average active customers by average monthly revenue per customer.
monthlyRevenue = averageCustomers * monthlyArpu
Estimate monthly direct costs
Multiply average active customers by the direct cost to serve each customer.
monthlyDirectCosts = averageCustomers * monthlyCogsPerCustomer
Calculate gross profit and gross margin
Gross profit is revenue after direct costs; gross margin expresses that amount as a share of revenue.
grossProfit = monthlyRevenue - monthlyDirectCosts; grossMargin = (grossProfit / monthlyRevenue) * 100
Calculate acquisition cost and operating profit
CAC measures acquisition spend per new customer, while operating profit subtracts entered operating costs from gross profit.
customerAcquisitionCost = salesMarketingSpend / newCustomers; operatingProfit = grossProfit - salesMarketingSpend - otherOperatingCosts
Monthly subscription business calculation
Ending active customers
200 + 30 - 10
220 customers
Average active customers
(200 + 220) / 2
210 customers
Monthly revenue
210 × $100
$21,000
Monthly direct costs
210 × $25
$5,250
Gross profit and gross margin
$21,000 - $5,250; ($15,750 / $21,000) × 100
$15,750 and 75.0%
CAC and operating profit
$3,000 / 30; $15,750 - $3,000 - $7,000
$100 CAC and $5,750 operating profit
Final Result
Estimated monthly revenue is $21,000, gross profit is $15,750, gross margin is 75.0%, customer acquisition cost is $100 per new customer, and operating profit is $5,750.
Assumptions
- ✓Revenue and direct costs are estimated from the average of beginning and ending active customers.
- ✓ARPU and direct cost per customer are assumed to remain consistent throughout the month.
- ✓All entered sales and marketing spend is attributed to new customers acquired in the same month.
- ✓Other operating costs include the relevant monthly costs but exclude categories not entered.
Limitations
- !Actual revenue may differ because customers may join, leave or change plans at different points in the month.
- !Revenue recognition and cost allocation methods can produce accounting results different from this estimate.
- !CAC can be volatile in a single month because spending and customer acquisition may occur in different periods.
- !Operating profit here does not include taxes, interest, depreciation, amortisation or unentered costs.
Common Mistakes to Avoid
Using ending customers rather than average customers to estimate the whole month's revenue.
Including fixed overhead in direct cost per customer instead of other operating costs.
Dividing sales and marketing spend by total active customers rather than new customers when calculating CAC.
Mixing annual revenue per customer with monthly customer counts and monthly costs.
Entering customers who are leads or free users as active paying customers.
Related Formulas
Frequently Asked Questions
How do you calculate monthly unit economics?
Estimate average active customers, multiply by ARPU for revenue, subtract direct costs for gross profit, then subtract sales and marketing spend and other operating costs for operating profit.
What is the monthly revenue formula?
Monthly revenue equals average active customers multiplied by average monthly revenue per customer.
How is gross margin calculated?
Gross margin equals gross profit divided by monthly revenue, multiplied by 100.
How do you calculate customer acquisition cost?
Customer acquisition cost equals sales and marketing spend divided by new customers acquired in the same period.
Why use average active customers?
The average of beginning and ending customers provides a simple approximation when customer activity changes during the month.
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