Unit economics refers to the direct revenues and costs associated with a single unit of a business—in Zomato's case, a single order. Unlike traditional businesses where a ₹100 sale might yield ₹30-40 in gross profit, food delivery operates on razor-thin margins where every rupee counts. The fundamental question unit economics answers is: 'Does this business make money on each transaction, or does it lose money hoping to make it up on volume?'

For Indian startups, unit economics has become the defining metric separating sustainable businesses from 'growth at all costs' models. The 2022-2023 funding winter forced companies like Zomato, Swiggy, and Paytm to shift focus from GMV growth to contribution margin positivity. Understanding these metrics helps investors identify which startups have genuine paths to profitability versus those burning cash indefinitely.

Let's trace what happens when Zomato offers a ₹50 discount on a ₹400 order. The customer pays ₹350, thinks they got a great deal, and Zomato absorbs the ₹50. But the real cost is much higher due to cascading effects across the entire transaction.

But wait—there's more. The discount also erodes the base commission. On a ₹400 order at 20% take rate, Zomato would earn ₹80. On a ₹350 effective order (after discount), they earn ₹70. That's another ₹10 lost. The total economic impact of that ₹50 discount is closer to ₹90.

Zomato has made significant progress on unit economics since its IPO in 2021. Let's look at the trajectory:

The key insight: Zomato achieved profitability not by growing faster, but by growing smarter. They reduced discounting, increased platform fees, optimized delivery routes, and improved restaurant commissions. This is the playbook for sustainable startup growth.

Here's a framework for analyzing unit economics of any Indian startup:

Step 1: Identify the Unit** What is one 'unit' of the business? For Zomato, it's an order. For Paytm, it's a transaction. For BYJU'S, it's a subscription. This determines what metrics to track.

Step 2: Calculate True Revenue per Unit** Strip out GMV and find actual revenue. For marketplace businesses, this is take rate × GMV. For subscription businesses, it's actual subscription revenue minus discounts and refunds.

Step 3: Map All Variable Costs** List every cost that scales with each unit: payment processing, delivery, customer support, returns, refunds, cashbacks. Be comprehensive.

Step 4: Calculate Contribution Margin** Revenue per unit minus variable costs per unit = contribution margin. This number MUST be positive for sustainable unit economics.

Step 5: Analyze Trends** Is contribution margin improving quarter over quarter? What's driving the improvement? Is it sustainable (efficiency gains) or temporary (reduced marketing)?

Understanding unit economics transforms how you evaluate startup stocks like Zomato, Paytm, or Nykaa. Here's how to apply this knowledge:

For Zomato Specifically:** - The stock's re-rating from ₹40 (2022 low) to ₹280+ (2024) was driven entirely by unit economics improvement, not revenue growth - Future upside depends on Blinkit achieving contribution margin positivity and food delivery maintaining 25%+ contribution margins - Key risk: increased competition from Swiggy IPO forcing return to heavy discounting

Valuation Framework for Startups:** Traditional P/E ratios don't work for loss-making companies. Instead, use:

Key Takeaway:** The ₹50 discount costing ₹80 isn't just an accounting curiosity—it's the fundamental reason why startup investing is so different from traditional stock picking. The businesses that master unit economics will thrive; those that don't will eventually run out of money or dilute shareholders into oblivion.