Know your numbers: unit economics 101
If you can't say your profit on one order, you can't tell whether ads make money or lose it. The two numbers that matter are contribution margin per order and the break-even ROAS it sets.
AI can run the full calculation from your inputs. You supply the real costs, because AI must never guess your COGS, shipping, or fees.
Fastest path: one prompt, end to end
🤖 AI prompt — paste into ChatGPT / Claude
You are a DTC finance analyst. Compute my unit economics from MY numbers only (invent nothing).
Average order value (AOV): [$]
Product cost (COGS) per order: [$]
Shipping + fulfillment per order: [$]
Payment + transaction fees per order: [$ or %]
Any other per-order cost: [$]
Do this:
1. Contribution margin per order = AOV - (COGS + shipping + fees + other). Show the arithmetic.
2. Contribution margin %.
3. Break-even ROAS = AOV / contribution margin (the ad ROAS where you neither make nor lose money).
4. The MAX customer-acquisition cost (CAC) you can pay and still break even on the first order.
5. One line: at a target [$] CAC, what ROAS do I need to hit?
If I left a number blank, ask for it, do not assume.
Output: the numbers with the math shown.
Or do it in 4 steps
- Add up every per-order cost: product (COGS), shipping/fulfillment, payment fees, packaging. Miss one and every downstream number lies.
- Compute contribution margin = AOV − those costs. This is the real dollars each order contributes toward ads and profit, not revenue, not gross margin alone.
- Derive break-even ROAS = AOV ÷ contribution margin. Below it, ads lose money; above it, they profit. This one number governs every ad decision (see the paid-ads break-even-roas note and its calculator).
- Set your max CAC. On a first order, you can spend up to your contribution margin to acquire a customer and break even. If repeat purchases matter, you can pay more, but know your first-order number first.
Worked example (labeled): AOV $60; COGS $18, shipping $6, fees $2 → costs $26. Contribution margin is $34 (57%). Break-even ROAS = 60 ÷ 34 = 1.76.
So any campaign under 1.76x ROAS loses money, and your max first-order CAC is $34. Every scaling decision flows from these three numbers.
Recompute whenever costs, price, or shipping change, stale unit economics hide losses.