Profitable growth strategy for ecommerce brands where sales grew and the money didn't

ROAS is revenue over ad spend. It knows nothing about cost of goods, discounts, delivery or returns. A merchant on a Shopify forum asked exactly this: why an ad with a ROAS of 3.8 still loses money¹. The answer sits in the margin.

Our convention: contribution margin is revenue minus variable costs before marketing (goods, delivery, payment fees, returns, discounts). In our convention, break-even ROAS is one divided by that margin. One advisory firm calculates it the same way². An analytics vendor's guide uses gross margin instead³. Gross margin leaves out delivery, returns and discounts, so it makes your headroom look bigger than it is.

Example (illustrative): Gross margin is 60 per cent, so the gross-margin break-even ROAS is about 1.7. After delivery, payment fees, returns and discounts, contribution margin is 35 per cent. Break-even ROAS is about 2.9. A ROAS of 2.5 looks safe on the first number and loses money on the second.

Run your own figures through the Break-even ROAS & contribution margin calculator. For the full chain, read ROAS looks good but no profit.

Returns. The platform counts the sale before the parcel comes back. Google Ads lets advertisers retract or restate conversions after the fact, so reporting and bidding can reflect what you kept⁴. How we use that is in profit-based bidding Google Ads.

Stock. The platform optimises for purchases. Whether there are units left to sell is for you and us to check. Trade media reported a vendor study in which retailers paid for Google Shopping clicks on products that were not available⁵. A campaign ready to scale is good news. The warehouse would like a word.

Discounts. A discount takes a bigger share of margin than of revenue, as one analytics vendor explains⁶. Evidence on what discounts do to repeat buying online is thin. A university summary of a deep-discount study describes research on physical stores, not ecommerce⁷. So we compare sales with and without the discount on your own data. More in are ecommerce discounts profitable.

A payback period is how long a customer takes to earn back their acquisition cost. Our convention is to count it in margin, not revenue, in months. One vendor recommends counting payback on contribution profit and reading it from cohort curves rather than a single formula⁸.

One vendor publishes payback benchmarks by business model⁹. That is an illustration, not a norm. The right payback is the one your cash can finance.

Cash is the other half. The cash conversion cycle is days of inventory plus days of receivables minus days of payables, as an advisory firm's guide sets it out¹⁰. Cash in stock can't buy ads. Read ecommerce cash flow and marketing spend for how growth can lead to a cash crunch.

On its own, as a strategy project, or together with execution services such as retention and CRM for ecommerce. We don't publish prices. Scope first, fee second, on a call. There is no free strategy audit. Our free audits cover measurement and tracking, ad accounts, CRO and retention. The ad account audit already sets what platforms report against your sales and margin.