Look, I’m going to be honest with you.
I’ve spent something like 25 years helping business owners scale their companies through mastering their marketing. I’ve seen brands go from kitchen table operations to seven-figure powerhouses. I’ve also seen brilliant products and passionate founders crash and burn.
And after all that time, I can tell you there’s one error that kills more promising ecommerce brands than any other.
It’s not choosing the wrong advertising platform. It’s not having a small audience. It’s not even having a product that’s too niche.
It’s scaling before you understand your unit economics.
That’s it. That’s the mistake that separates the brands that thrive from the ones that slowly bleed out while wondering what went wrong.
And here’s the frustrating part: most brand owners don’t even realise they’re making it. They’re looking at their ROAS, seeing a number that looks healthy, and assuming everything is fine. Meanwhile, their bank account is telling a completely different story.
So let me walk you through exactly what I mean, why it matters, and how to make sure you’re not falling into the same trap.
The Number Everyone Looks At (That Tells You Almost Nothing)
When I ask ecommerce brand owners how their paid advertising is performing, they almost always give me their ROAS. “We’re at 2.5x,” they’ll say. Or “We just hit 3x last month.”
And they say it with pride, because somewhere along the line, someone told them that a 3x ROAS is good. Maybe they heard it on a podcast. Maybe their agency told them. Maybe they just absorbed it from the general marketing ether.
But here’s what nobody explained: ROAS without context is meaningless.
Let me show you what I mean with two real scenarios.
Brand A is a children’s accessories brand we work with. Their current Meta ads performance looks like this: $27.73 cost per purchase, $78.42 average order value, and a 2.83 ROAS. This brand has a 75% gross profit margin. So on that $78.42 order, they’re keeping $58.82 after product costs. After the $27.73 ad spend, they’re left with $31.09 profit per order.
That’s healthy. That’s a business that can scale.
Now consider Brand B – same category, similar AOV of $75, but only a 40% gross margin. Their gross profit is $30 per order. If they’re paying $28 to acquire that customer (nearly identical to Brand A), they’re left with just $2 profit before overheads.
Same ROAS. Same cost per purchase. Completely different outcomes.
Brand A can pour money into advertising and grow profitably. Brand B is essentially paying to go broke, one order at a time. And if Brand B’s owner is just looking at their ROAS thinking “we’re close to 3x, things are fine,” they’re sleepwalking toward disaster.
This is what I mean by understanding your unit economics. It’s not complicated maths, but it requires you to know your actual numbers – not just the vanity metrics that advertising platforms love to show you.
The Formula That Changes Everything
Here’s the calculation every brand owner needs to know: your break-even ROAS equals 1 divided by your gross profit margin.
For Brand A with 75% margins, break-even ROAS is 1.33. Anything above that is profit.
For Brand B with 40% margins, break-even ROAS is 2.5. They need to work more than twice as hard just to break even.
Once you know your break-even ROAS, you can calculate your target ROAS (break-even plus your desired profit margin) and your maximum CAC (the most you can afford to pay per customer while still hitting your profit goals).
For Brand A with their $78 AOV and 75% margin, wanting 20% net profit? Their maximum cost per purchase is $78 × 0.75 × 0.8 = $46.80. They’re currently paying $27.73, which means they have headroom to scale.
For Brand B with their $75 AOV and 40% margin, wanting that same 20% profit? Their maximum cost per purchase is $75 × 0.40 × 0.8 = $24. If they’re paying $28, they’re already underwater on every single sale.
This is why understanding your unit economics isn’t optional. It’s the difference between scaling a profitable business and scaling your way into bankruptcy.
How This One Error Creates a Cascade of Bad Decisions
When you don’t understand your unit economics, you make bad decisions without even realising it. And those bad decisions compound.
You spend too much, too fast
Without knowing your true break-even point, it’s easy to look at rising revenue and assume everything is working. You increase your ad spend. Sales go up. You increase it again. Sales go up more.
But here’s the timing problem nobody warns you about. You pay Meta or Google upfront – those charges hit your credit card within days. The money from your customers takes longer. Processing fees, shipping costs, returns to handle. If you’re using Afterpay or Klarna, you might not see the full amount for weeks.
Scale too fast without understanding your margins, and you’re haemorrhaging cash faster than it’s coming in. Your revenue is up 50% but you can’t make payroll. I’ve seen it happen to brilliant brands with loyal customers – they scaled themselves right into a cash flow crisis.
Brand A, with their healthy unit economics, has only 25% of revenue coming from paid ads. The rest comes from organic traffic, email marketing, and repeat customers. That’s a resilient model. If your paid advertising is driving more than 30-40% of your revenue and you don’t have crystal-clear unit economics, you’re vulnerable.
Or you spend too little and stagnate
The flip side is just as dangerous. Without understanding what profitable customer acquisition actually looks like for your business, you might be too cautious – spending $20 a day and wondering why nothing’s working.
The thing about advertising algorithms is they need data to optimise properly. Meta recommends around 50 conversions per week per ad set to exit the learning phase. If you’re spending $20 a day and your cost per purchase is $30, you’re getting maybe 4-5 purchases a week. The algorithm never learns. Your results stay mediocre. You conclude that “ads don’t work for my brand.”
I worked with an Australian skincare brand stuck in this holding pattern for over a year. They were spending $500 a month, generating maybe 15-20 sales, and their ROAS was a dismal 1.5. When we increased their budget to $2,000 a month and consolidated their campaigns properly, their ROAS jumped to 3.2 within six weeks.
Same products. Same creative approach. They just finally gave the algorithm enough data to work with. But they only had the confidence to do that once they understood their unit economics and knew exactly what “profitable” looked like for their specific margins.
You put all your eggs in one basket
If the last year taught ecommerce brands anything, it’s that relying on a single advertising platform is risky business. Algorithm changes can tank previously profitable campaigns overnight. CPMs spike during peak periods. Account restrictions happen for seemingly no reason.
But when you don’t understand your unit economics, you can’t properly evaluate new channels. You don’t know if Google Shopping is working because you don’t know what “working” means for your margins. You can’t tell if Pinterest is worth the investment because you’re not measuring the right things.
Brand A started with Meta only. Once they were consistently hitting 2.5+ ROAS (well above their 1.33 break-even), they added Google Shopping. Now they’re layering in Pinterest. Each channel is evaluated against their actual profitability requirements, not arbitrary industry benchmarks.
You undervalue your existing customers
Here’s where it gets really interesting. When you understand your unit economics, you realise that your cost per purchase is only half the equation. The other half is customer lifetime value.
If you’re paying $27 to acquire a customer and they only ever buy once, your entire margin depends on that first order. But what if that customer buys five times over two years? That $27 acquisition cost is now spread across five purchases. Your effective cost per order drops to $5.40.
This is why email and SMS automation isn’t just a nice-to-have – it’s a profitability lever. A well-performing ecommerce brand should be generating 30-40% of their revenue from email and SMS. That’s revenue with almost no acquisition cost, which dramatically improves your blended CAC and overall profitability.
Platforms like Klaviyo make this possible at scale. An abandoned cart sequence recovers 5-15% of lost sales – customers you’ve already paid to attract. A post-purchase flow encourages reviews and repeat purchases. You’re not just improving customer experience; you’re fundamentally changing your unit economics by increasing the lifetime value side of the equation.
Getting Your House in Order
So how do you make sure you’re not making this critical error?
Start by knowing your numbers cold. Not vaguely. Cold.
Calculate your gross profit margin on your average order. Be honest – include product costs, packaging, shipping materials, merchant fees. The number might be lower than you thought.
Calculate your break-even ROAS (1 ÷ gross margin). Write it down somewhere you’ll see it every day.
Calculate your maximum CAC based on your desired profit margin. This is your guardrail – the number that tells you when to pull back.
Then build a proper tracking system. I still advocate for spreadsheets here. Not because there aren’t fancier tools, but because manually documenting your metrics every week forces you to actually look at them, think about them, and understand what they mean.
Track these weekly: ad spend, purchases, cost per purchase, AOV, ROAS, conversion rate, and – this is the one most people forget – your blended CAC across all channels. Brand A’s blended CAC across all traffic sources is much lower than their paid-only CAC because 75% of their revenue comes from organic and email. That’s the goal.
Questions I Get Asked All the Time
“How do I know if my ROAS is actually good?”
It depends entirely on your margins. A 3x ROAS is fantastic for a brand with 70% gross margins – that’s $2.10 profit for every $1 spent on ads. But for a brand with 35% margins, a 3x ROAS means only $0.05 profit per dollar spent. Calculate your break-even ROAS and work from there.
“My ads seem to work for a while, then stop. What’s happening?”
This is usually ad fatigue or audience saturation. Your target audience has seen your creative too many times and has started tuning it out. The fix is to rotate new creative regularly – new images, new hooks, new angles. For most ecommerce brands, you should be testing new creative every 2-4 weeks.
“What conversion rate should I be aiming for?”
For cold traffic from paid ads, 1-3% is typical, with 2%+ being solid performance. But this varies by product, price point, and audience quality. Brand A is hitting 10.48% – but that’s their blended rate including warm traffic from email and organic. Their cold traffic conversion rate from ads alone is closer to 3%. Compare like with like.
“How do I know when I’m ready to scale my ad spend?”
You’re ready when you understand your unit economics inside out, you have consistent profitable performance over at least 2-3 weeks, your operations can handle increased orders without falling apart, and you have the cash flow to absorb the gap between ad spend and revenue. If any of these pieces are missing – especially the first one – scaling will hurt more than help.
The Bottom Line
Every other mistake in paid advertising – overspending, underspending, platform dependency, ignoring customer lifetime value – stems from this one fundamental error: scaling before you understand your unit economics.
It’s not glamorous. It requires sitting down with a spreadsheet and doing some maths. It means accepting that a “good” ROAS for someone else might be a disaster for you.
But once you understand your numbers, everything changes. You stop guessing. You stop panicking when metrics fluctuate. You know exactly what profitable looks like for YOUR business, and you can make decisions from a place of clarity rather than anxiety.
That’s when scaling stops being terrifying and starts being exciting.
Ready to Get Clear on Your Numbers?
If you’re not sure whether your unit economics actually work, or you suspect you might be scaling in the wrong direction, I’d love to help.
Book a Brand Growth Strategy Session where we can look at your specific situation, crunch your numbers together, and map out what profitable scaling actually looks like for your brand. It’s a genuine strategy session – not a thinly veiled sales pitch – where you’ll walk away with actionable insights regardless of whether we end up working together.
We’ll also share more about how we help unique, innovative, and sustainable ecommerce brands grow profitably through smart marketing strategy.
Because you deserve a business built on solid foundations – not one that looks successful on the surface while quietly bleeding out underneath.
