#20. Can You Track Your SaaS Product's Cost Per Customer? — Your Simple Guide to Unit Economics

Why do you need Unit Economics, and how to calculate it? Here is your guide.

Unit economics is one of the more complex topics in FinOps that few people truly understand. Many struggle with it because they don't see why they need it, and there are few practical guides on how to calculate it.

In this article, I'll give you a practical example where unit economics (or simply the unit cost of cloud) makes perfect sense, and show you how to calculate it.

Why Do you need Unit Economics?

Let's assume you have an application running in the cloud called "mycoolsaas" — a platform where customers can upload files, have them transformed by AI into something cool, and then export them in a different format.

As a business owner, you'll need to calculate cloud costs to price your subscriptions. The simplest approach is to divide your subscription revenue by the total number of users. Or even simpler, divide revenue by the total cloud cost of the application (including both production and non-production accounts).

This method works well when all users pay the same subscription price. However, what if you have a freemium business model or tiered pricing? In cases where most users are on free plans and you want to focus on your premium subscribers to provide better services, you might need to know the cloud cost per customer for each tier. Simply dividing the total application cost isn't enough—it only tells half the story. You need to calculate the Cloud costs per customer, subscription, or tier. This granularity of cost allocation approach is called unit economics.

While standard cost allocation methods provide a broad overview of expenses, Unit Economics lets you analyze how specific services translate into business outcomes and optimize each one individually.

Use Cases for Unit Economics

Once you apply unit economics, you'll discover numerous valuable use cases. Here are some:

Allocating Costs: As mentioned previously, unit economics is the most accurate method for cost allocation, especially for SaaS products where chargebacks can be challenging.
Forecast: With known unit costs, forecasting becomes a straightforward calculation of business demand. (e.g., anticipating 10 new tier 2 users next month means your forecast is 10 x unit cost)
Anomaly Detection: Checking the unit cost during usage spikes helps determine their cause. A spike might come from increased demand (e.g., Amazon during Black Friday or a streaming service during the Super Bowl or El Clásico). However, if the unit cost itself rises, the anomaly might stem from new service additions (e.g., a new feature in the business application) or wasteful usage.
Cost Optimizations: When you clearly understand how each service contributes to total cloud costs, you can better evaluate their business value and optimize them individually.
Business Tracking on Cloud: Let's say you run a marketing campaign offering free premium subscriptions for one month. While cloud costs increase from new subscriptions, revenue might not rise due to the promotional pricing. However, unit economics helps you measure the business value of acquiring these new subscribers.

How to Calculate Cloud Unit Economics?

Now that we understand the value of Unit Economics, let's tackle the challenging part: How do we calculate it?

First, you need to define your Unit of Cloud Cost ****— the metric that tracks your business performance in the cloud. This varies by product type. For example:

An airline ticketing application? → cost on cloud per mile per seat
A SaaS platform? → cost per subscription per tier
A car sharing app? → Cost per ride or per KM

Once you've chosen your metric, you'll need to gather and calculate the data. This is done by monitoring (or literally spying on) your cloud services' traces. Database operations (read, write, update, or delete) leave traces in logs. For instance, a log trace of a new database record or POST operation for products/{productId}/cutomers/{customerId} enables you to track the cost of specific operations per customer. You can use similar tracking for network operations, blob storage costs (such as a customer's Bucket size), and compute costs (like the duration of a compute operation for a customer).

One final thought: if you think calculating Cloud Unit Economics sounds challenging, you're absolutely right. However, if you're interested in implementing it, I recommend finding the right tool to handle this task for you. Tools like attribute , finout or CloudZero do exactly this—and much more—right out of the box. Perhaps calculating unit economics isn't so daunting after all! 😉

Summary

Cloud unit economics is the practice of tracking cloud costs at a granular level to understand the total cost of different services for a specific unit—typically a customer, subscription, or similar metric.

Unit economics requires analyzing the services that drive spending and tracking how their operations relate to the unit metric (e.g., storage size used or compute time in seconds per customer). This can be extremely challenging to do manually without specialized tools.