Unit Economics Truth
See these evidence standards applied in practice. The Unit Economics Truth evaluator uses these definitions to assess per-unit profitability. Learn more about Unit Economics Truth.
Evidence & Evaluation Definitions
Canonical evidence standards and enforcement mechanisms used across all ProfitBooks evaluators. This document defines what qualifies as evidence, how evidence is stress-tested and decomposed, and why certain inputs are penalized or rejected. If information does not meet these definitions, it is treated as zero.
Version: v1.1
Status: Canonical · Locked
Core Principle: Evidence Must Survive Enforcement
ProfitBooks does not accept inputs at face value. Every material claim is subjected to at least one operator-level enforcement pass to remove blending, subsidy, hidden variance, timing illusions, and control assumptions. Operators do not add intelligence—they strip ambiguity.
Purpose of This Document
This document does
- • Define what qualifies as evidence
- • Explain how evidence is stress-tested, decomposed, and invalidated
- • Specify why certain inputs are penalized or rejected
- • Show how operators eliminate ambiguity and optimism bias
This document does not
- • Provide advice, tactics, or fixes
- • Recommend growth, pricing, or cost actions
- • Interpret ambition or intent
Core Evidence Concepts (System-Wide)
1. Observed Behaviour Only
ProfitBooks evaluates what has already happened, not what is expected to happen.
Qualifies
- • Cash received
- • Costs incurred and paid
- • Units delivered
- • Margins realized
- • Dependencies already observed
Invalid
- • Forecasts
- • Pipeline
- • "Once we scale..."
- • "We can fix this later"
Rule: If behaviour has not been observed, it does not exist for scoring.
2. Single-Unit Integrity (No Blending)
All unit economics must be evaluated on exactly one unit of value.
Valid
- • One contract
- • One subscription period
- • One delivery instance
Invalid
- • "Average customer"
- • Mixed tiers
- • Composite bundles
- • Cross-subsidized units
Rule: If the unit cannot stand alone, it cannot be trusted.
3. Net Realized Revenue (Not Booked Revenue)
Revenue is only valid if it is realized, net, and cash-aligned or cash-reconcilable.
Stripped out
- • Discounts
- • Credits
- • Refunds
- • Churn reversals
- • Accounting adjustments
Rule: Anything reversible, conditional, or unpaid is treated as zero.
4. True Variable Cost Reality
All direct variable costs per unit must be itemized. This includes:
- • Delivery labour
- • Support labour
- • Deal-specific sales labour
- • Infrastructure and usage-based costs
- • Onboarding and fulfillment
- • Payment processing
- • Founder labour
Rule: Untracked costs downgrade margins. Missing costs are not inferred.
5. Founder Labour Is a Cost (Always)
Founder labour is never free.
Required
- • Time allocation per unit
- • Market-realistic cost attribution
Invalid
- • "Founder doesn't take a salary"
- • "Early-stage exception"
- • "Sweat equity"
Rule: Unpaid labour is a subsidy. Subsidies are penalized.
6. Margin Must Survive Variance
Average margins are not sufficient. ProfitBooks evaluates:
- • Best-case units
- • Worst-case units
- • Segment variance
- • Fragility under deviation
Rule: If margin collapses under realistic variance, it is fragile.
Cash Reality Evidence Standards
7. Cash > Profit
Profitability is irrelevant if liquidity fails.
Evaluated
- • Cash-in timing
- • Cash-out timing
- • Net timing gap
- • Working capital exposure
- • Burn quality
Rule: Survival under stress outweighs base-case comfort.
8. Burn Quality and Commitment
Burn is not a number. It is a structure.
ProfitBooks distinguishes
- • Discretionary vs committed burn
- • Fixed vs variable burn
- • Step-function obligations
- • Timing cliffs
Rule: If burn cannot be decomposed, it is fragile.
Scale & Profit Durability Evidence Standards
9. Growth ≠ Improvement
Top-line growth is neutral until proven otherwise.
ProfitBooks evaluates
- • Margin behaviour under volume
- • Cost behaviour under scale
- • Complexity introduction
- • Control loss
Rule: Growth that worsens margins or control is a negative signal.
10. Control Beats Peak Profit
Profit must be controllable, repeatable, and defensible.
Evaluated
- • Cost control authority
- • Pricing power
- • Dependency exposure
- • Concentration risk
Rule: Narrow, dependency-driven profit is penalized.
11. Durability Under Stress
ProfitBooks prioritizes resilience over optimization.
Stress includes
- • Pricing pressure
- • Demand shocks
- • Cost volatility
- • Funding unavailability
Rule: If profit does not survive stress, it is not durable.
Evidence Weighting Hierarchy
Highest Weight
- • Bank statements
- • Payroll records
- • Cleared customer payments
- • Vendor invoices with dates
High Weight
- • Contracts paired with observed collections
- • Unit-level delivery cost evidence
Medium Weight
- • Accounting exports reconciled to cash
Zero Weight
- • Forecasts
- • Plans
- • Fundraising assumptions
- • Narratives
- • Slideware
Canonical Scoring Rules
Missing evidence = zero
Blended units = FAIL
Uncosted founder labour = subsidy flag
Cash reliance on perfect timing = downgrade
Growth increasing fragility = negative
Downside risk outweighs upside potential
Final Canonical Statement
ProfitBooks does not reward ambition.
It evaluates economic truth under enforcement.
Operators exist to remove optimism, not add intelligence.
If the business survives scrutiny, it earns the verdict.
Version: v1.1 | Status: Canonical · Locked | Applies to: Unit Economics Truth, Cash Reality & Runway, Scale & Profit Durability
Related Assessments
Cash Reality & Runway
Cash evidence standards are particularly strict. The Cash Reality evaluator applies these definitions to assess survivability under real timing. Learn more about Cash Reality & Runway.
FROM THE KNOWLEDGE BASE
Understanding evidence standards is critical because most unit economics failures are hidden by blended metrics. Read: Why Unit Economics Break Before Growth Stalls.