Unit Economics

Develop and track metrics that provide an understanding of how an organization’s cloud use and cloud management practices impact the value of the organization’s products, services, or activities.

Definition

Unit Economics bridges the gap between what an organization spends on cloud and the fundamental value that cloud spending creates. Without understanding how to track costs to benefits received, we are missing the context that tells us whether we are spending appropriately.

Unit economics provide the organization with important cues to be able to meet organizational goals with cloud usage. They are an important method of communicating effectively between personas, and tying cloud costs more tightly to business outcomes.

Unit economic metrics can be defined for many different aspects of cloud usage. Unit economics might be created to track the cloud cost by revenue, or per million authorized users, or per transaction, or per customer, depending on the goal of the organization or application it tracks. Unit economics can be defined for more technical aspects of a system such as the cost per load for a website microservice, or the cost per click for a customer interaction, or even the cost per gigabyte of customer data stored.

These unit economics should inform the behavior of engineering teams to work on incremental development on elements that are responsible for generating unneeded cost or that create excessive value. They can inform Product owners about direct and indirect costs which are created by customer use, leading to better pricing models. They can provide a continuous reminder to everyone of the status of meeting organizational margins or financial goals.

By pairing cloud spend with value measurements, growth or reductions in cloud spending reflect on overall value changes. Unit Economics allows you to understand the true impacts of your business. If Cloud Costs are rising, the Unit Economic view will help you understand if you are realizing the benefits of economies of scale or if there are runaway costs in your metric. When practitioners address measuring unit costs, it’s often in the context of Cloud Unit Economics. Our practitioners define Cloud Unit Economics as a system of profit maximization based on objective measurements of how well your organization is performing against not only its FinOps goals, but as a business overall. Cloud Unit Economics achieves these goals by leveraging the measurement of marginal cost (a.k.a., unit cost metrics) specific to the development and delivery of cloud-based software and marginal revenue (a.k.a., unit revenue metrics).

By calculating the difference between marginal cost and marginal revenue, practitioners can determine where cloud operations break even and begin to generate a profit. This is an important concept in economics overall and it’s one of the most effective ways to make data-driven business decisions regarding your cloud investment. For further details on defining, implementing, and building upon cloud unit economics with your FinOps teams, the unit economics working group has published a paper on implementing the Capability.

Benefits extend beyond efficiency. Unit costs become a compass, guiding leaders toward strategic decisions. Unit costs expose hidden inefficiencies in underutilized services, prompting strategic service consolidation or architecture changes. Unit costs can identify cases where costs are outpacing business value, urging a closer look at resource allocation and product decisions. Unit costs can also show why an increase in cloud costs is not always a bad thing if proportionally more business value is being delivered.

Unit metrics can generally be sorted into two broad categories:

1. Resource Efficiency Unit Metrics (e.g. cost per GB stored, cost per GB transferred, cost per virtual CPU)
2. Business Unit Metrics (e.g. cost per flight available seat mile, cost per tenant, cost per transaction)

Engineers can more easily implement resource efficiency unit metrics to demonstrate their value and best practices within their team. Implementing business unit metrics then provides broader context to the business, and is an indicator of higher maturity.

Ultimately, unit costs are more than just KPIs – they guide a cultural shift. They foster a shared responsibility for cloud spending by aligning technology costs with business value. Engineers become cost-conscious architects, product teams build value-driven features, and leadership steers toward financially sound strategies.

Maturity Assessment

Functional Activities

Measures of Success & KPIs

Defining KPIs to measure the success of using KPIs can be challenging.

Organizational success in this capability could be measured in terms of the percentage of teams, personas, or stakeholders that are using unit economics metrics to communicate about cloud use.

The use of both resource utilization unit metrics and business unit metrics should be in place for any areas of cost which impact the organization’s business results, or which drive large amounts of value.

Automation, or the ability to automatically calculate unit economics metrics using repositories which are well documented, accessible, and correlated should be apparent in metrics which are critical to broader business decision making.

Regular review and consideration of appropriate KPIs, and periodic analysis of the impacts of unit economics use should be in place to allow for adjustment of metrics where needed, addition of new metrics to drive additional good behavior, or retirement of metrics which no longer serve the needs of the organization.

Inputs & Outputs

• Data Ingestion cloud cost data, business relevant value data, requirements for common repository of usage data
• Business Performance data from operational areas being measured with Unit Economics