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Ad Budgets 2 min read

This is why companies lose money - and can't figure out why.

Don’t arbitrarily pick your ad budget.

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During slower months, it’s normal to pull back on ad spend. But here’s what you don’t realize: That 10x ROAS might actually be losing you money.

Why? Because you’re not spending enough to cover all of your expenses.

Here’s an example:

  • You spend $100k/month on fixed expenses (payroll, rent, etc.)

  • 75% = **COGS / gross margin

  • 25% = Shipping, fulfillment, credit card fees, and other sales-related costs That leaves you with 50% of every dollar in Contribution Margin.

Contribution margin is what pays for your fixed expenses.

If your contribution margin doesn’t fully cover that $100k, you’re losing money. If it does, whatever remains after fixed expenses is your net profit.

So if you’re only spending $10k on ads this month, that spend has to generate enough revenue to cover $100k/month in fixed expenses.

With a 50% contribution margin, that means you’d need $210k/month in revenue.

On a $10k ad budget, that’s a 21x ROAS (which is wildly unrealistic!)

But if you increase your ad spend to $50k/month…

your required ROAS drops to 4.2x, which generates enough revenue & contribution margin to fully cover your fixed expenses.

Higher ad budgets → Lower ROAS → Actual profitability.

Interested in seeing what a profitable ad budget looks like for you?

Schedule a demo with me.