Unit economics
Unit economics is the calculation of how much profit one order leaves after paying for the goods, the costs of fulfilling it and the ads that won it.
How it works
Unit economics follows the money of one order. Start from the average order value and take away the cost of goods, then the costs every order carries: delivery, payment fees, packaging, returns. What remains is the order’s contribution margin. Take away the ad cost of winning the order, and you see whether each sale earns or loses. If it earns, more orders mean more profit; if it loses, growth only makes the loss bigger.
An ad account holds revenue and spend, but the cost of goods and order costs live in the store’s own books. So the calculation runs on the store’s numbers. The same chain gives the break-even ROAS: the ROAS at which the ad cost eats the whole contribution margin. The full chain from margin to ROAS is in unit economics for online stores on Google Ads. There is no single benchmark: it depends on margin, order value, delivery costs and the price of a click.
Formula
Profit per order = average order value × margin − variable costs per order − ad cost per order
Example
Example store, not client data.
The tableware shop’s average order is 600 at a 35% margin, so each order leaves 210 after the cost of goods. Delivery, payment fees and packaging take 42 per order. Ads cost 40,000 for 300 orders, or 133 per order. Profit per order = 210 − 42 − 133 ≈ 35. Over the month that is 63,000 − 12,600 − 40,000 = 10,400, before fixed costs such as rent and salaries.
Not to be confused with
| Term | How it differs |
|---|---|
| Margin | The share of revenue left after the cost of goods. Unit economics goes on to subtract delivery, fees and ads. |
| POAS | Profit divided by ad spend: a ratio for the account or a campaign. Unit economics shows in money what one order leaves. |
| Customer acquisition cost | The cost of winning a new customer. The ad cost per order here counts every order, repeat buyers included. |
Right and wrong readings
- Wrong: “We lose a little on ads now, but more orders will cover it.” Right: at a ROAS of 3, an order costs 600 ÷ 3 = 200 in ads and leaves 210 − 42 − 200 = −32. At the same ROAS, 300 orders lose 9,600 and 600 orders lose 19,200: the loss on each order adds up with volume.