A chai stall sells a cup for ₹15. Milk, tea leaves, sugar, gas and the paper cup cost about ₹9. That leaves ₹6 on every cup.
Sell 200 cups a day and the stall makes ₹1,200 towards rent and wages. Sell 400 and it makes ₹2,400. Every extra cup helps.
Now imagine a startup that delivers chai to offices for the same ₹15. The chai still costs ₹9. The delivery rider, the packaging and the payment fee add another ₹22. Every cup now loses ₹16.
Sell more, and it loses more.
What’s going on
This is unit economics: the revenue and costs of a single unit of your business. A unit can be one cup, one order, one ride or one customer.
The key number is the contribution margin: the price of one unit minus the costs that come with it. Rent, salaries and the app stay roughly the same however much you sell. The cup, the milk and the rider come with every single order.
If each unit makes money, growth slowly pays off the fixed costs. If each unit loses money, growth just digs the hole faster.
Think of a leaking bucket
Growth is a tap pouring water into a bucket. Unit economics is whether the bucket has a hole.
With no hole, more water means a fuller bucket. With a hole, a stronger tap just means more water on the floor. Turning up the tap never fixes a leak.
There’s an old joke about this: “We lose money on every sale, but we’ll make it up on volume.”
Where you’ll spot it
- “Add ₹49 more for free delivery.” Small orders lose money on delivery, so apps nudge you towards a bigger basket.
- Cinema popcorn. Ticket money is shared with the film’s distributor. Popcorn margins aren’t, which is why a tub can cost almost as much as a seat.
- Airline baggage fees. The fare gets you on the plane. The extras make each seat profitable.
How to use it
Before you celebrate growth, work out one unit:
- Price of one unit.
- Minus every cost that comes with it. Materials, delivery, payment fees, discounts.
- What’s left is what that unit contributes.
If the answer is negative, you need a real plan to fix it: bigger orders, higher prices, cheaper delivery or fewer discounts. “Once we’re bigger” is only a plan if being bigger actually changes one of those numbers.
Growth multiplies whatever is already there, profit or loss.
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