Profit Margin

What This Page Answers

Profit margin measures how much of revenue remains after costs. Paid media decisions become much clearer when ROAS and CPA are interpreted through margin. A campaign can have high ROAS and still be unprofitable if margin is low.

Basic Formula

Profit margin = profit / revenue

For paid media, contribution margin is often more useful than accounting profit margin because it focuses on variable economics around each sale.

Why Margin Matters

ROAS is revenue divided by ad spend. It ignores how much profit that revenue creates. Example:

  • Product A: $100 AOV, 20% margin = $20 contribution

  • Product B: $100 AOV, 60% margin = $60 contribution

The same $30 CPA is terrible for Product A and potentially strong for Product B.

Margin Inputs

Consider:

  • Cost of goods sold

  • Shipping

  • Fulfillment

  • Payment processing

  • Discounts

  • Returns

  • Platform fees

  • Sales commissions

  • Support costs where relevant

Margin-Aware Targets

A margin-aware paid media system should set different targets by:

  • Product line

  • Category

  • Geography

  • Acquisition channel

  • New vs returning customer

  • Subscription vs one-time purchase

  • Discounted vs full-price order

Practical Rule

ROAS without margin is incomplete. Margin tells you whether attributed revenue can actually support acquisition cost.