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If you're selling anything online, pay attention to these two variables:
1. Unit economics: how profitable is one "unit" of your product or service? (one digital download, 1 month of MRR)
2. Sales volume: how many units can you sell every month?
1. Unit economics: how profitable is one "unit" of your product or service? (one digital download, 1 month of MRR)
2. Sales volume: how many units can you sell every month?
Unit economicsThink about a musician.
## She used to make:
On iTunes:Retail price: $0.99 / track
Artist profit: $0.69 / track
## But now she makes:
On Spotify:Artist profit: $0.007 / stream
Her profit per unit has gone WAY down.
Sales volume On iTunes, an artist needed to sell 3,623 tracks to earn $2,500 in a month. On Spotify, she needs to get 357,143 streams to earn $2,500 in a month.Because of poor unit economics, the volume required to hit baseline has gone WAY up.
The market you serveLet's say an artist has "1,000 true fans." To hit her revenue numbers:
On iTunes, each fan would need to buy 3-4 new tracks per month. (Difficult, but not impossible) On Spotify, each fan would need to stream her music 357 times per month.
This is exactly what happened to @pomplamoose: they had good unit economics on iTunes, but bad margins + volume on Spotify.
As @jackconte recounted to @guyraz on @HowIBuiltThis:
https://www.npr.org/2021/01/08/954876726/patreon-jack-conte-and-sam-yam
As @jackconte recounted to @guyraz on @HowIBuiltThis:
https://www.npr.org/2021/01/08/954876726/patreon-jack-conte-and-sam-yam
“In the recent past it might have been possible to make a middle-class living on your music. In the current streaming economy, the only way to survive is to be huge.”
https://www.theringer.com/tech/2019/1/16/18184314/spotify-music-streaming-service-royalty-payout-model
https://www.theringer.com/tech/2019/1/16/18184314/spotify-music-streaming-service-royalty-payout-model
So what does this mean for SaaS founders, or creators selling digital products and subscriptions?
Volume
Profit.
Those are your two levers.
How badly do people want it? That's volume.
What's your price and costs? That's profit.
Volume Profit.Those are your two levers.
How badly do people want it? That's volume.
What's your price and costs? That's profit.
Low-volume example:
If you want to make $10k / month...
And your margins are 80%,
but you can only attract 5 sales,
your price is going to need to be $2,500
If you want to make $10k / month... And your margins are 80%, but you can only attract 5 sales, your price is going to need to be $2,500
High-volume example:
If you want to make $10k / month...
And your margins are 80%,
and your price is $25,
you'll need 400 sales/month
most SaaS is high-volume (~400 customers to earn $10k / month)
If you want to make $10k / month... And your margins are 80%, and your price is $25, you'll need 400 sales/month most SaaS is high-volume (~400 customers to earn $10k / month)
Generally, you're either in a low-volume business (with a high price), or a high-volume business (with low prices).
And (again, generally):
Most consulting/services businesses are low-volume/high-price
Most SaaS/digital products businesses are high-volume/low-price
And (again, generally):
Most consulting/services businesses are low-volume/high-price Most SaaS/digital products businesses are high-volume/low-price
Just wrote this up for my upcoming Saturday newsletter.
Anyone here want to give me some feedback? (Ways to improve, make it better/more clear) https://justinjackson.ca/units
Anyone here want to give me some feedback? (Ways to improve, make it better/more clear) https://justinjackson.ca/units
Another funny example:
Tony Hawk owns his own skateboard company (Birdhouse).
My guess, based on market share, is he's sold 1-2 million decks in the past 10 years.
But over the past decade, his video games have sold over 31 million copies.
He's rich from
not 
.
Tony Hawk owns his own skateboard company (Birdhouse).
My guess, based on market share, is he's sold 1-2 million decks in the past 10 years.
But over the past decade, his video games have sold over 31 million copies.
He's rich from
not .
