Module 10 — Pricing, unit economics and cash flow

Level: Intermediate · Duration: 4 hours · Tracks: 🟢 🔵 🟣 · Prerequisite: Module 5

1. Objectives

By the end of this module you will be able to:

1. Build a unit economics model for a single order that reveals whether your store actually makes money.
2. Price a product with a formula that works backwards from the margin you need instead of the margin you can see.
3. Calculate the break-even point in orders and in revenue, and the margin of safety.
4. Calculate customer lifetime value and its ratio to acquisition cost, and judge whether your acquisition is sustainable.
5. Build a 13-week cash forecast and use it to make an inventory purchase decision with confidence.

2. Core concepts

2.1 Unit economics — dissecting a single order

The income statement tells you about the month. Unit economics tells you about the order, and the order is the unit your decisions are made in: do I raise the ad spend? do I cut the price? do I add free shipping?

    Average order value (before tax)
  − Cost of goods sold for the order
  ─────────────────────────────────
  = Gross profit for the order
  − Fulfilment cost (payment + delivery + packaging + commissions)
  − Expected returns cost
  ─────────────────────────────────
  = Contribution margin for the order   ──▶ this is the number that funds your fixed costs
  − Customer acquisition cost
  ─────────────────────────────────
  = Net profit for the order

The cut-off rule: if the contribution margin for the order is negative, then every additional order deepens your loss. Doubling the advertising in that situation is acceleration towards bankruptcy — and it happens to a lot of stores, because they measure "sales" and not "contribution".

2.2 Pricing — running it in reverse

Most founders price like this: cost × 3 = price. Then they discover the margin has evaporated. The right method starts from the margin you need and works the price out backwards:

                         Landed cost + fixed fulfilment cost per unit
Price = ──────────────────────────────────────────────────────────────────────────────
        1 − variable fees − returns rate − marketing rate − target contribution margin

Applied to Nuwa:

Price = 79.50 ÷ (1 − 0.03 − 0.04 − 0.15 − 0.30)
      = 79.50 ÷ 0.48
      = 165.63 dirhams

The reading: the floor for hitting Nuwa's targets is 165.63, and it sells at 199. The 33.37 dirham gap is its room to manoeuvre: it can absorb free shipping, or a promotional discount of up to 16%, or a rise in international freight costs — without the margin falling below target. A store that does not know this number hands out discounts on instinct, and sometimes sells below its own true cost.

2.3 The break-even point

Break-even in orders = monthly fixed costs ÷ contribution margin per order (after marketing)
Margin of safety = (actual orders − break-even orders) ÷ actual orders

2.4 Customer lifetime value

LTV = contribution margin per order (before marketing) × average number of orders per customer over 12 months
CAC = total marketing spend ÷ number of new customers

A warning: a high LTV is no use if the payback period is long. A customer who buys again after 8 months means your cash is locked up for 8 months. A young store needs to recover its CAC within the first or second order.

2.5 The 13-week cash forecast

Why 13 weeks? Because it is a quarter — a horizon short enough to be accurate, and long enough to let you see a crisis coming with time to act.

Three rules that make the forecast useful instead of decorative:

1. Record the cash in the week it arrives, not the week of the sale. A gateway that settles after 7 days means week 3's sales are week 4's cash.
2. Put tax and inventory payments in as prominent standalone lines. They are the two biggest cash surprises in a young store.
3. Watch the lowest balance, not the closing balance. A store that ends its quarter at 200,000 but passes through 4,000 in week seven — that week is what can kill it.

3. Worked example — Nuwa, January 2026

3.1 The unit economics of an order

3.2 The break-even point

Monthly fixed costs:

Break-even = 19,200 ÷ 124.31 = 154.5  ⇒  155 orders per month
Break-even in revenue = 155 × 272.91 = 42,301 dirhams
Margin of safety = (350 − 155) ÷ 350 = 55.7%

The reading: Nuwa's orders could fall 55.7% before it starts losing money. A comfortable position for a first month. But salaries and rent will rise with growth — recalculate the break-even point with every new fixed commitment before you sign it, not after.

3.3 Customer value

CAC = 15,000 ÷ 300 = 50.00 dirhams
LTV = 167.17 × 1.8 = 300.91 dirhams
LTV ÷ CAC = 6.0
CAC payback period = 50.00 ÷ 167.17 = 0.30 of a single order  ⇒  recovered on the first order

The reading and the decision: the ratio of 6.0 is strong, and payback happens on the first order — meaning every dirham of advertising comes back before any other cash goes out. That means Nuwa is spending less than it could on acquisition. The logical test: raise the advertising budget gradually and watch the ratio; expansion is sound as long as it stays above 3 and payback stays inside the first order. The real constraint is not profitability, it is cash — and that is where the cash forecast comes in.

3.4 The shape of a 13-week forecast (a simplified model, selected weeks)

Using it on a real decision: "should I order a 120,000 dirham shipment in week 5?" Put it into the model and look at the lowest balance. If it drops below your safety reserve (two months of fixed costs = 38,400), then the answer is: split the order, or negotiate longer credit, or push it out two weeks. The decision becomes arithmetic instead of anxiety.

4. Exercises

E10.1 — Unit economics (beginner→intermediate). A store: average order value 320 · cost of goods 145 · payment fees 2.5% · delivery 18 per order · packaging 4 · returns 7% by value · marketing 68 per order. Build the full unit economics and pass judgement on it in one line.

E10.2 — Reverse pricing (intermediate). Landed cost 112 · fixed fulfilment 16 · variable fees 3.5% · returns 6% · target marketing 18% · target contribution margin 32%. Calculate the floor price. Then: what is the largest promotional discount you can give if the current selling price is 249, without breaking the target margin?

E10.3 — Break-even (intermediate). Monthly fixed costs 46,000 · contribution margin per order after marketing 88 · actual orders 720. Calculate the break-even point and the margin of safety. Then: hire an employee at 9,000 a month — how many extra orders does that take to cover? And can the margin of safety carry it?

E10.4 — LTV and CAC (intermediate→advanced). Marketing spend 84,000 · new customers 420 · contribution margin per order 96 · average orders per customer per year 2.4. Calculate CAC, LTV, the ratio and the payback period. Then: advertising costs rise 40% with nothing else changing — redo the calculation, and decide whether you carry on or stop, and on what condition.

E10.5 — The inventory decision in cash (advanced). Bank balance today 96,000 · monthly fixed costs 31,000 · expected weekly net operating cash +7,500 · a tax payment of 14,200 due in 5 weeks · an opportunity to buy a shipment for 140,000 at a 12% discount if paid in cash within two weeks (otherwise 60 days' credit with no discount).
(a) Build a 13-week forecast for both options. (b) What is the lowest balance in each? (c) What is the discount worth in dirhams? (d) What is your decision and why? (e) What condition would flip your decision?

5. Mini project — "The store dashboard"

Deliverable: a three-sheet decision file that runs on inputs you can change.

What is required:

1. A unit economics sheet: inputs at the top and calculated outputs below, showing the contribution margin and the profit per order.
2. A pricing and break-even sheet: the floor price from the reverse formula · the break-even point in orders and in revenue · the margin of safety · the maximum possible discount.
3. A 13-week cash forecast sheet: with a realistic settlement lag, a prominent line for tax and inventory payments, and a "lowest balance" and "critical week" cell.
4. A sensitivity analysis: what happens to the contribution margin and the break-even point if (a) international freight costs rise 25%, (b) the returns rate rises from 4% to 9%, (c) CAC rises by 50%? Show all three in one table.
5. A 5-line decision page: based on the model, what is the one decision you are making this month? And which number, if it changed, would flip that decision?

Acceptance criteria:
- [ ] The contribution margin per order on Nuwa's data = 167.17 and the break-even point = 155 orders.
- [ ] Every input sits in its own changeable cell — no numbers buried inside formulas.
- [ ] The cash forecast surfaces the "lowest balance" and the "critical week" automatically.
- [ ] The sensitivity analysis covers all three scenarios with numbers, not descriptions.
- [ ] The decision page names one specific number that flips the decision (the reversal condition).

6. The test

10 questions · pass 7/10.

7. Completion standard

Mastery level (optional): build the dashboard with your real store's numbers, then use it to make one actual decision this month (a price, an advertising budget, or an inventory order). After 30 days, compare what the model predicted with what happened. The gap between them tells you which of your inputs was a guess dressed up as a number.