Ecommerce Profit Math: Pricing, Margins and ROAS Made Simple
Ecommerce Profit Math: Pricing, Margins and ROAS Made Simple
A plain-English guide to knowing what you really earn on every order, and how much you can afford to spend on ads.
Who it is for: Ecommerce and dropshipping store owners who run ads and want to know whether each order is actually profitable.
About this eBook
Many online stores look busy but lose money on every order because the numbers behind each sale are unclear. This free guide explains ecommerce profit maths in plain English with worked examples. You will learn unit economics, how to list every cost of an order including the hidden ones such as shipping, payment fees, packaging and cash-on-delivery refusals, and the difference between margin and markup. The guide shows how to calculate contribution margin per order, choose a pricing method, and work out your break-even ROAS and target cost per acquisition before spending on ads. You will see a sample monthly profit and loss, understand the real cost of discounts, raise average order value with bundles, and learn the basics of repeat customers and lifetime value. A simple monthly profit tracker helps you keep the numbers under control.
What you will learn
- List every real cost behind an order
- Tell margin and markup apart with confidence
- Calculate contribution margin per order
- Find your break-even ROAS and target CPA
- Understand the true cost of discounts
- Track profit monthly with a simple template
What is inside
- Introduction
- Unit Economics, the Foundation
- Cost of Goods and the Hidden Costs
- Margin vs Markup
- Contribution Margin per Order
- Pricing Methods
- Break-even ROAS, Target CPA and the Monthly P&L
- Discounts, Average Order Value and Bundles
- Repeat Customers, LTV and a Monthly Profit Tracker
- Quick-Start Checklist
Read the introduction
Many online store owners know their sales number by heart but cannot say how much profit they made last month. Sales feel good. Profit pays the bills. The gap between the two is made of product costs, shipping, payment fees, packaging, returns, ads and fixed expenses, and if you do not measure them, they quietly eat your business.
This guide is for small business owners, new ecommerce sellers and anyone running ads for an online store. You do not need an accounting background. If you can add, subtract, multiply and divide, you can do everything here. A calculator or spreadsheet helps.
By the end of this guide you will be able to:
- Work out the true cost of every order, including the hidden costs most beginners forget
- Explain the difference between margin and markup and avoid the common pricing mistake
- Calculate contribution margin per order
- Find your break-even ROAS and target cost per acquisition (CPA) before you spend on ads
- Build a simple per-order and monthly profit and loss statement
- Understand what discounts really cost you
- Use bundles, average order value and repeat customers to grow profit
- Track the numbers that matter every month
The worked examples use one consistent currency. The same method works with USD, GBP, EUR or other currencies. You can check your own numbers quickly with the free ROAS Calculator, Break-even ROAS Calculator and Profit Margin Calculator at dadtechnologies.com/tools/.
Related free tools
Browse all our free eBooks and guides, read the blog, or contact DAD Technologies for help putting these steps into action.