TheContributionMarginProblem

High ROAS often hides the true cost of fulfilling an order. The gross number looks impressive, but the net is empty. Selling £100 of goods with £95 in costs is not success. It is churn.

The Problem with Good ROAS

ROAS measures gross revenue relative to ad spend. It tells you nothing about whether those sales are profitable after all costs are covered.

A 5x ROAS on £10k spend shows £50k revenue. But if COGS, shipping, returns, and other variable costs consume £45k, you have £5k left. After the £10k ad spend, you are £5k in the red.

Hidden Costs of Fulfilment

Every sale has costs that ROAS ignores:

• • High return rates on "hero" items: 30-40% return rates on fashion destroy reported revenue
• • Shipping and handling: The £4.99 delivery you offered costs £6.50
• • Heavy discounting: 20% off erodes 20% of an already thin margin
• • Payment processing: 2-3% per transaction adds up
• • Customer service: Each query costs time and money

How Margin Erodes

Consider a typical order:

That 5x ROAS "success" generated £5.83 contribution. Not per pound spent. Per order. Scale this with a 20% discount promotion and the contribution goes negative.

Revenue Up, Profit Down

The dangerous pattern: revenue charts trend up while bank balances trend down.

Fixing the Contribution Problem

Shift optimisation goals from vanity metrics to value metrics:

1. Target CM3: Optimise to Contribution Margin after advertising, not just ROAS
2. Negative Lists: Exclude low-margin SKUs from high-cost campaigns
3. Bid Modifiers: Adjust bids based on product margin tiers
4. Stop Discounts: Protect margin before chasing volume

Changing How You Bid

When you know the true margin of each product, bidding changes fundamentally:

• • High-margin products: Bid aggressively, accept lower ROAS
• • Low-margin products: Bid conservatively or exclude entirely
• • Clearance products: Accept any positive contribution to move units
• • Acquisition products: Accept loss on order one if LTV justifies