🚀 If your E-commerce business aims to be profitable in 2024, you must understand your unit economics! It may sound fancy, but it's all about figuring out how much money you make from each order. You need to know whether you're making or losing money with every sale. First, start by examining how much you sell your product for, that's your 'revenue.' ✅ Gross Revenue (after VAT and taxes) Next, you need to add up all the costs associated with your products. This includes the cost of making or buying the product, packing, marketing, shipping to the warehouse, and more. These are your 'product costs.' ⛔ COGS - cost of goods sold (product costs, including inbound shipping) comprehensive view will also include: ⛔ Discounts ⛔ Returns, Replacements & Defects ⛔ Payment Processing ⛔ Pick & Pack Fees ⛔ Shipping (Outbound) ✅ Gross profit: This is the Profit from the revenue that is left after variable order costs, excluding ad spend. After that, look at what it actually costs in ad spend to get an order. An easy way is to divide the total ad spend by all orders from the last month. This will give you a blended cost. ⛔ Blended Marketing Costs (Ad Spend) ✅ Contribution margin. This is the profit left from your revenue after deducting all variable order-related costs, including ad spend. This will help you identify what net profit you have after your fixed expenses. ⛔ Fixed expenses (Payroll, Rent, Technology, Agency Fees, etc.) ✅ Net profit: This is the bottom line. What is left after everything and the real profit. 📈 Analyzing unit economics enables you to determine whether you're making or losing money on each order. I recommend creating a Google sheet and conducting this exercise for 10-20 orders with different combinations of discounts, products, free shipping, etc. This will give you an idea if the blended average is making you a profit and if there are unprofitable order combinations. If you discover unprofitable combinations, consider raising prices, reducing discounts, or negotiating better terms with suppliers and vendors. ✅ This order profit breakdown is one of the most used features in ProfitMetrics, and it's a healthy exercise to perform regularly. It forces you to examine the unit economics behind different orders and identify what's profitable and what's not, revealing opportunities. How often do you and your team review your unit economics? 📆 #eccommerce #googleads
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