Your Unit Economics - Making Sure You're Profitable

One of the most important concepts in running any business is unit economics -- understanding the actual numbers behind each customer. How much does it cost you to serve them? How much do you make from them? Is the math working in your favor?

Many new business owners do not think about this carefully enough. They are excited to have a client. They are relieved to be making money. But if you are not making enough margin on each client, you will work yourself exhausted and still struggle financially. This chapter is about making sure every client you take on is actually profitable -- and knowing exactly how profitable they are.

Why Unit Economics Matter More Than Total Revenue

Here is a scenario that plays out constantly with new consultants: You land a client who pays you $2,000/month. You are thrilled. Money is coming in. But then you start tracking your time and realize you are spending 25 hours per month on this client. That is $80/hour before any expenses. After software costs, taxes, and overhead, you are netting maybe $50/hour. You could make more working at a corporate job with benefits and no business stress.

The problem was not that you got a client. The problem was that the economics of that client did not work. And you did not know because you never ran the numbers.

Unit economics is the antidote to this. It forces you to look at each client as a mini profit-and-loss statement. Revenue minus costs equals profit. If the profit is healthy, great -- go get more clients like that one. If it is thin or negative, you need to either raise your prices, reduce your costs, or let that client go.

Your Unit Economics Calculation

Here is a real example you can adapt to your situation:

Revenue Per Client (Monthly)

• Monthly retainer: $3,000
• Average additional hourly work: 5 hours x $150/hour = $750
• Total monthly revenue per client: $3,750

Cost to Serve That Client (Monthly)

This is where most people undercount. You need to include everything:

Your time delivering the work:
12 hours x (your target hourly rate of $100 as a cost basis) = $1,200

Why use $100 as a cost basis instead of your billing rate? Because your cost basis represents what your time is worth to you as an opportunity cost. If you could earn $100/hour doing other productive work, then spending an hour on a client costs you $100 in opportunity -- regardless of what you charge that client. This keeps your analysis honest.

Shared overhead (software, tools):
~$150/client when you have 5 clients

This includes things like:
- Project management tools (Asana, Monday, etc.): ~$30/month
- Communication tools (Zoom Pro, Slack): ~$30/month
- CRM or client management: ~$50/month
- Document storage and sharing: ~$20/month
- Accounting software: ~$40/month
- Professional development and subscriptions: ~$80/month
- Total: ~$250/month, divided across 5 clients = ~$50/client

Wait, that is only $50 per client, not $150. The difference comes from tools and services that scale per client -- things like dedicated email addresses, client portals, or industry-specific compliance tools. The exact number depends on your practice, but $100-$200 per client in shared overhead is typical for an expertise-based business.

Marketing/acquisition cost amortized:
$200/month (spread across your client base)

This represents the time and money you spend finding clients. If you spend 8 hours a month on business development and value your time at $100/hour, that is $800/month in acquisition effort. Divide by 4 clients and you get $200/month per client. As your referral engine grows, this number drops significantly.

Total monthly cost per client: ~$1,550

Gross Profit Per Client Per Month

$3,750 - $1,550 = $2,200/month per client

That is a 58.7% gross margin. For a service business, anything above 50% is healthy. Above 60% is excellent. Below 40% means you need to adjust your pricing or your delivery efficiency.

How Many Clients Do You Need?

To break even:

If your personal expenses + business overhead = $5,000/month:
5,000 / 2,200 = 2.3 clients to break even (round up to 3 for safety)

To hit $10,000/month in personal income:

($10,000 + $2,000 in overhead) / $2,200 = roughly 6 clients

To replace a $120,000/year corporate salary:

$120,000/year = $10,000/month. But remember, as a self-employed person you also need to cover health insurance (~$600/month), self-employment tax (~15.3% of net income), and retirement contributions. So your real target is more like $14,000/month in gross business income.

$14,000 / $2,200 = 6.4 clients (round to 7)

Seven clients, each paying you $3,000-$4,000/month. That is a very achievable number. And it means you are building a six-figure business with a manageable workload.

The Capacity Check

Here is a critical follow-up question: can you actually serve 7 clients without burning out?

Let us check. If each client requires 12 hours/month of delivery time plus 2 hours of admin (communication, invoicing, prep):
- 7 clients x 14 hours = 98 hours/month
- Plus 8 hours/month for business development
- Plus 8 hours/month for admin (bookkeeping, tools, learning)
- Total: 114 hours/month = roughly 28.5 hours/week

That is well under a 40-hour week. You have built a business that pays you more than your corporate salary and gives you back time. This is the power of good unit economics.

But what if your delivery takes 20 hours per client instead of 12? Now it is 7 x 22 = 154 hours plus 16 hours of overhead = 170 hours/month = 42.5 hours/week. Still manageable, but much tighter. And if a couple of clients have extra-demanding months, you are quickly at 50+ hours. This is why tracking your actual hours per client is non-negotiable.

Real-World Unit Economics: Three Scenarios

Scenario 1: The Lean Consultant

Profile: Solo cybersecurity consultant, working from home, minimal overhead.

With 5 clients: $13,100/month profit. Excellent economics.

Scenario 2: The Growing Practice

Profile: HR consultant with a virtual assistant and some outsourced work.

With 8 clients: $16,240/month profit. The VA adds cost but also adds capacity -- she can serve 8 clients instead of being maxed at 5.

Scenario 3: The Underpriced Consultant

Profile: Same expertise, but priced too low and spending too much time.

This consultant is losing money on every client. She is working harder than anyone and falling further behind. The fix is not more clients -- it is raising prices and tightening scope.

Why This Matters for Every Decision You Make

When you know your unit economics, you can make smart decisions:

• Should I take on a lower-priced client? Only if the margin still works and they add valuable experience or referrals. A $2,000/month client who only requires 6 hours of work is better than a $4,000/month client who eats 25 hours.
• Should I hire a contractor to help? Only if the cost is covered by what you are charging. If adding a $35/hour VA for 5 hours/client lets you take on 3 more clients at $3,500/month, the math is: 3 x $3,500 = $10,500 revenue, minus 3 x $175 VA cost = $525, minus your additional time cost. If the net is positive, do it.
• Should I add a cheaper group service? Only if it is truly additive, not just taking time away from higher-margin work. A $697 group workshop that takes 8 hours to deliver and serves 12 people generates $8,364 in revenue for 8 hours of work. That is $1,045/hour of your time -- far better than your 1-on-1 rate.
• Should I offer a discount to close a deal? Know exactly what discount you can afford. If your profit per client is $2,200/month, a 10% discount on a $3,750 retainer costs you $375/month -- reducing your profit to $1,825. That is still healthy. A 30% discount reduces profit to $1,075 -- workable but thin. A 50% discount makes the client barely profitable.
• When should I raise my prices? When your margins are healthy but your capacity is full. If you have 6 clients and cannot take a 7th, raising your rate by 15% across the board gets you the same revenue from 5 clients -- freeing up capacity for one more at the higher rate.

Exercise: Calculate Your Unit Economics

This is the most important exercise in this entire playbook series. Set aside 45 minutes and work through it honestly.

Step 1: Estimate your revenue per client.
Write down what you plan to charge (or currently charge). Include the base retainer and any expected overflow.

Step 2: Estimate your cost to serve each client.
Be honest about hours. Track your time for two weeks if needed. Include:
- Your delivery hours x your opportunity cost rate
- Software and tools allocated per client
- Any outsourced or contracted work
- Marketing and acquisition costs spread across clients

Step 3: Calculate your profit per client per month.
Revenue minus total costs. Express it as a dollar amount and as a percentage.

Step 4: Determine your break-even client count.
Divide your total monthly living and business expenses by your profit per client.

Step 5: Determine your target client count.
How many clients do you need to hit your income goal? Is that number realistic given your capacity?

Step 6: Stress test your model.
What happens if a client takes 50% more time than expected? What if you lose one client? What if you need to discount by 20% to close a deal? Run these scenarios and make sure your model survives them.

Template for Your Unit Economics

Copy this template and fill it in:

• Revenue per client/month: $______
• Hours per client/month: ______
• Your time cost per client: $______
• Overhead per client: $______
• Acquisition cost per client: $______
• Total cost per client: $______
• Profit per client/month: $______
• Profit margin: ______%
• Break-even client count: ______
• Target income client count: ______
• Maximum capacity (clients): ______

The Monthly Numbers Review

Once your business is running, do this review on the first day of every month:

1. How many active clients do I have?
2. What was total revenue last month?
3. What were total costs last month?
4. What was my effective hourly rate? (Total profit / total hours worked)
5. Which client has the best margins? Why?
6. Which client has the worst margins? What should change?
7. Am I on track for my quarterly income target?

This takes 30 minutes. It is the most valuable 30 minutes you will spend each month. Consultants who track their numbers make dramatically better decisions than those who go on gut feeling.

Key Takeaways:

• Unit economics tells you whether each client is actually profitable -- revenue alone does not mean profitability
• At $3,750/month revenue and ~$1,550/month cost per client, gross profit is ~$2,200/month per client
• Most expertise-based consultants need only 3 clients to break even and 6-7 clients to replace a corporate salary
• Know your numbers so you can make smart decisions about pricing, hiring, and which clients to take on
• Track your actual hours per client -- the difference between estimated and actual time is where profit leaks hide
• Do a monthly numbers review on the first of every month -- it is the most valuable 30 minutes in your business