Unit economics and marketplace terms
Almost every metric here can be calculated on revenue or on margin, and the two give different answers — often opposite ones. Revenue-based figures flatter a business with thin margins, which is precisely the business that can least afford to be flattered.
The order below is deliberate: contribution margin first, because most of the others are only meaningful once you have it.
Contribution margin
What is left of each sale after every cost that varies with it — goods, shipping, commission, fulfilment, payment fees — expressed as a share of the net price.
What it is for
It is the money available to cover fixed costs and, after those, to become profit. It also sets your advertising ceiling directly: break-even ACoS equals the contribution margin, and break-even ROAS is its inverse.
What to leave out
Fixed costs — rent, salaries, subscriptions — do not belong in it. Nor does advertising, when you are calculating it in order to judge advertising: including it there double-counts and makes every campaign look worse than it is.
AOV (average order value)
Total revenue divided by the number of orders. The lever most sellers ignore while chasing traffic.
Why it is the cheap lever
Per-order costs — payment fees, packing labour, the fixed part of shipping — do not rise proportionally with order value. A larger basket spreads them across more revenue, so margin improves faster than AOV does.
It also raises your advertising ceiling: a higher AOV at the same margin means more contribution per acquired customer, which lets you bid more.
Conversion rate
The share of visits that end in an order. Orders divided by sessions, as a percentage.
Why it is the cheapest lever
Traffic costs money every time. Conversion is bought once and applies to every visit afterwards, including the free ones. Moving from 2% to 2.4% is the same as buying 20% more traffic, permanently and at no ongoing cost.
On marketplaces the largest single factor is usually delivery — speed, cost and whether the listing carries the badge that signals both.
CAC (customer acquisition cost)
Total sales and marketing spend divided by the number of new customers it produced in the same period.
Read it next to LTV
CAC alone says nothing. Against lifetime value it says everything: if a customer is worth 90 in contribution and costs 30 to acquire, you can grow. If the numbers are reversed, growth accelerates the loss.
Count new customers only. Including repeat buyers flatters CAC and hides exactly the problem you are looking for.
LTV (customer lifetime value)
The total contribution margin a customer generates across all their purchases, not just the first one.
Why it changes the advertising maths
If a customer buys three times, you can afford to lose money on the first order and still be profitable. That is why some sellers can outbid you on the same product — they are buying a relationship, you are buying a sale.
The caveat is that repeat purchase has to be real and measured. In categories where people buy once, LTV equals the first order and the argument evaporates.
ROAS (return on ad spend)
Revenue divided by the advertising spend that produced it. A ROAS of 4 means four units of revenue for every one spent — which says nothing about profit on its own.
The break-even figure
Break-even ROAS is 1 divided by your contribution margin. At a 30% margin that is 3.33; at 50% it is 2.00. A ROAS of 3 is comfortably profitable in the second case and loss-making in the first.
Average hides the margin
Reported ROAS is an average over all spend, while the decision you are making concerns the next increment — which performs worse, because the cheapest relevant clicks are bought first. A healthy average can conceal marginal spend already below break-even.
ACoS (advertising cost of sales)
Ad spend divided by the revenue that spend produced, as a percentage. Used mainly by Amazon sellers; it is the reciprocal of ROAS.
Your break-even ACoS is your margin
Not approximately — exactly. If 30% of each sale survives goods, fees and fulfilment, you can spend up to 30% of revenue on advertising before the campaign consumes everything it earns.
This is why a target ACoS copied from someone else is meaningless. Theirs is derived from their margin, not yours.
TACoS (total advertising cost of sales)
Ad spend as a percentage of your total sales, not just the sales the platform attributes to ads. The long-run counterpart to ACoS.
What it tells you that ACoS does not
If ACoS holds steady while TACoS falls, your organic sales are growing and the advertising is doing work beyond the click. If both rise together, you are buying sales you would otherwise have made anyway.
Buy Box
On a listing shared by several sellers, the one whose offer is selected by default when a buyer clicks add to cart. The large majority of orders go to whoever holds it.
What decides it
Price including delivery, delivery speed, stock availability and seller performance metrics. It is not price alone — a slightly dearer seller with faster fulfilment routinely beats a cheaper one.
This is why fulfilment choice is a revenue decision rather than a logistics one, and why a stockout costs more than the missed orders themselves.
FBA and FBM
FBA (fulfilled by Amazon) means the marketplace stores, packs, ships and handles returns for you. FBM (fulfilled by merchant) means you do all of it yourself.
The comparison people get wrong
Putting the FBA fee next to your postage cost misses roughly half the cost on each side: FBA includes returns handling and customer service, while FBM includes your time, packaging and the conversion lost without the Prime badge.
Storage is the trap. It is charged per cubic metre per month and rises sharply past the long-term threshold, so slow movers turn FBA from cheap into expensive without anyone noticing.
Chargeback
A card payment reversed by the buyer’s bank after a dispute. You lose the sale amount, usually the goods, and a fixed fee on top.
Why it costs more than the order
The reversal, the goods, the fulfilment already paid, and a fee of typically 15 to 25 per case regardless of order value. On a low-priced item a single chargeback can wipe out the profit from a dozen sales.
A rising chargeback rate also threatens the payment account itself. Processors monitor it and act on it.