Dr. Paul Borosky, DBA, MBA
Business Plan Writer & Financial Projections
What Are Unit Economics in a Small Business?
Two Busy Locations Can Still Add Up to Zero.
Every location has a line out the door, and the bank account still is not growing. Before you sign the next lease, you need to know what one location earns by itself. Read on for how to find out in one sheet of math. It comes from 14+ years of client work by business plan writer Dr. Paul Borosky, DBA, MBA.
Last Updated: 11/08/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Definition
What Does Unit Economics Mean?
Short Answer
Unit economics is the profit one repeatable unit of a business produces on its own: one location, one truck, one crew, or one product line, usually over one month. It is what each sale leaves after its direct costs, times the number of sales, minus the fixed costs that unit carries by itself.
Unit profit = (price − direct cost per sale) × sales − the unit’s own rent and wages
Doctor Owl, in Plain English
“Do not count the line. Count what each cup leaves you, then see if the cups pay the rent. If one bar cannot, two bars lose twice as fast.”
How This Guide Works
Need the answer fast? Read the Short Answer above and the numbered steps. Want the full picture? Follow Jade, a jaguar with two juice bars from Dr. Paul’s Fabled Forest Business School Series, as she counts the crowd instead of the coins. Her story shows up in a few short gold notes along the way. The math sits in one section, clearly marked.
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Meet Jade: A Jaguar With Two Busy Bars
Some lessons stick better as a story. Dr. Paul’s Fabled Forest Business School Series teaches business through a forest full of small business owners. Doctor Owl, a dry-witted consultant who lives in the Lone Oak, helps them fix the same problems real owners face.
Today he meets Jade, a jaguar who runs a juice bar in the Canopy Market and has just opened a second one on the town square, with a line twice around the fountain. A third bar on the coast is next. When Doctor Owl asks what one bar earns, Jade waves at the crowd.
Why It Matters
Why Can a Busy Location Still Lose Money?
Busy is the wrong scoreboard. A crowded room tells you people want what you sell. It does not tell you whether each sale leaves enough to pay the rent and wages of that location.
The danger grows when you copy it. Every new location brings its own lease and its own staff. If one unit runs at a small loss, a second unit doubles the loss and a third triples it. That is why unit economics comes before expansion, and why lenders ask for it.
In the Fabled Forest
Jade’s opening day had a line twice around the fountain. At the end of her first full month, the two bars had sold 580 cups between them. Together they were ten coins down.
What You Measure
What Numbers Go Into Unit Economics?
- The unit. The piece you would duplicate: one shop, vehicle, crew, or product line.
- Price per sale. What the customer pays for one item or job.
- Direct cost per sale. Materials, ingredients, packaging: the costs that rise with every sale. Price minus this is your contribution margin.
- Sales per month. A normal month, not the grand opening.
- The unit’s own fixed costs. Rent, the person who runs it, and anything it uses alone.
In the Fabled Forest
Jade’s numbers: two coins a cup, three coins of fruit and cups for every two cups sold, a 100-coin helper at each bar, and rent of 40 in the market and 60 on the square.
The Fix
How Do You Fix a Unit That Is Not Profitable?
Raise what each sale leaves, or lower what the unit costs to run. Usually the first is easier. A larger size, a bundle, or a modest price change can move the margin more than any cost cut.
Then write a rule before you open the next one: how many months of profit each existing unit must show first. Owners who set the rule after they sign the next lease are not following a rule. They are explaining a decision.
In the Fabled Forest
A regular from the gym upstairs said he would gladly pay three coins for a large cup. Jade tested a large size for a week, and most customers took it. Then she wrote a rule on her tape measure: no new bar until every open bar shows three months of profit.
The Numbers
What Does One Unit Earn in a Month?
Here is Jade’s slate after her first full month, unit by unit. Fill in the same columns for each of your locations.
| Bar | Cups a month | Left after fruit and cups | Helper and rent | Month |
|---|---|---|---|---|
| Canopy Market | 280 | 140 | 140 | 0 |
| Town square | 300 | 150 | 160 | −10 |
| Total, two bars | 580 | 290 | 300 | −10 |
Step 1: What each sale leaves. 2 coins a cup − 1.5 coins of fruit and cup = 0.5 coins left per cup.
Step 2: Times a normal month. 280 cups × 0.5 = 140 coins at the market bar. 300 cups × 0.5 = 150 on the square.
Step 3: Minus the unit’s own costs. Market: 140 − (100 helper + 40 rent) = 0. Square: 150 − (100 + 60) = −10. Busy, and not profitable.
The fix in numbers. With a 3-coin large cup, six in ten customers traded up, and every ten cups left 8 coins instead of 5. The same two bars, with the same lines, now kept about 164 coins a month.
Illustrative numbers in forest coins, from the book. Use your own price, direct cost, and fixed costs.
Step by Step
How Do You Calculate Unit Economics for One Location?
Four steps, one month of your own numbers.
Choose the unit you plan to duplicate.
One shop, vehicle, crew, or product line, measured over a normal month. If you have more than one, do each separately.
Find what each sale leaves.
Subtract the direct cost of one sale from its price. If it is thin, every other number will struggle.
Multiply, then subtract the unit’s own costs.
Multiply what each sale leaves by sales in a typical month. Subtract that unit’s rent, staff, and anything it uses alone.
Set your rule before the next lease.
Decide how many months of profit each unit must show before you open another. Write it down where you will see it.
In the Fabled Forest
Jade did the math at a kitchen table with her tea going cold. Then she wrote the rule twice: once on her tape for herself, and once on a scroll for the helpers.
Jade’s Full Story
Did Jade Open Her Third Bar?
This page gives you the short version. The book gives you the whole month: the slate in the Canopy Market, the customer who solved it without meaning to, the rule on her tape measure, and what happened when she was tempted to sign the coast lease early.
Every chapter of Growth for Small Businesses works the same way. One owner, one problem, one real idea you can use on Monday, plus a one-page worksheet to do it.
Watch
How Does Break-Even Math Apply to One Location?
Dr. Paul works through break-even analysis, the same per-unit math that tells you whether one location covers its own costs.
Break-even Analysis, Explained
Dr. Paul Borosky, DBA, MBA.
A Business Plan Writer’s View
Why Do Lenders Ask for Unit Economics Before a Second Location?
Dr. Paul Borosky, DBA, MBA · Business Plan Writer
Lenders reviewing an expansion plan want proof that the first unit works before they fund the second. Dr. Paul builds that proof as a one-page unit statement: price, direct cost, monthly volume, and the unit’s own fixed costs, using real months, not opening weeks. When the unit is thin, he shows the fix in the plan itself, whether it is a pricing change, a product mix shift, or a lower-rent site, so the lender sees a business that already knows its weak spot. A plan that hides a losing unit gets found out in underwriting. A plan that names it and fixes it gets funded.
FAQ
Still Have Questions About Unit-Level Profit?
What is a unit in a small business?
Why are unit economics important before opening a second location?
How is unit economics different from break-even?
Keep Going
More Growth Decisions
This is foundation 2 of 20. These pages build on it. New to a term on this page? Every one is in the growth glossary.
Written by Dr. Paul Borosky, DBA, MBA, business consultant and author with 14+ years of experience and 1,000+ clients served. Need the expansion written up for a lender? See business plan writing services.
This page is for general educational purposes only. It is not legal, financial, employment, or other professional advice. Figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.