Key takeaways
- The unit in e-commerce is the order, and the number that matters is contribution margin after every variable cost.
- Acquisition cost only means something when it is compared to what a customer contributes over their lifetime.
- Returns, shipping, payment fees and packaging are not overhead, they belong in the order margin.
- Measure by channel and by product family, because the averages hide the loss-making corners.
An online store can grow revenue fast and still lose money on every order. Platform dashboards show sales and ad spend and leave the owner to guess at the rest. Unit economics closes that gap by answering one question precisely: after every cost that follows an order, how much is left, and is that enough to pay for acquiring the customer and running the company.
We build this analysis for BC e-commerce companies selling through their own stores and through marketplaces. Here is the method.
Start with contribution margin per order
Take the average order value net of discounts. Subtract the landed cost of the goods, including freight and duties to get them into your warehouse. Subtract payment processing fees, marketplace fees if any, outbound shipping net of what the customer paid, packaging, pick and pack labour or fulfilment fees, and the cost of returns spread across all orders. What remains is the contribution margin per order before marketing.
Build this from actual data for a recent month, order by order where the systems allow it. Owners are frequently surprised by how much of the gross margin is consumed by shipping and returns.
Bring in the cost of acquisition
Divide total marketing spend for the period by the number of new customers it produced. That is the blended cost to acquire a customer. Then calculate it separately by channel, because paid search, paid social, marketplaces, email and organic each behave differently. Compare the acquisition cost per channel to the contribution margin on a first order from that channel. A channel that costs more to acquire a customer than the first order contributes is only acceptable if those customers come back.
Attribution between channels is imperfect, and owners can spend weeks arguing about it. A practical approach is to measure each channel on the customers it is credited with, accept that some credit is shared, and watch the blended figure as the final check. If the blended acquisition cost is rising while every channel claims to be improving, the attribution is flattering someone.
Measure lifetime contribution, not lifetime revenue
Lifetime value is often quoted as revenue, which overstates everything. Use contribution instead. Group customers by the month they first bought, and track how many ordered again, how often and at what contribution, over the following months. This cohort view shows whether the business is building a base of repeat buyers or renting traffic one order at a time.
The relationship between lifetime contribution and acquisition cost, and how quickly the acquisition cost is paid back, is the core of the e-commerce model. It tells you how much you can afford to spend to grow and how fast you can afford to grow it.
Look inside the averages
Run the same analysis by product family and by channel. Heavy or bulky products with high shipping and return rates often lose money at the order level while lighter products subsidise them. Marketplace orders carry fees that direct orders do not. Discount-driven customers behave differently from full-price customers. The averages will tell you the business is fine. The segments will tell you where it is not.
Decide with the numbers
- Set free shipping thresholds and minimum order values from the contribution math, not from competitors
- Shift acquisition budget toward channels whose customers pay back fastest
- Reprice, bundle or drop products that lose money after shipping and returns
- Set the returns policy with its cost visible
- Tie inventory purchasing to products with proven contribution, not to products with high gross margin alone
Keep it current
Unit economics drift. Freight rates change, ad costs change, the product mix changes. Rebuild the order margin monthly from actuals and review the cohort and acquisition numbers quarterly. Put contribution margin per order, blended acquisition cost and payback on the owner's weekly pack alongside orders and average order value. Platform dashboards are a starting point for this, not a substitute.
Inventory decisions depend on the same numbers. A product with strong contribution per order and steady repeat demand deserves stock depth and marketing attention. A product that only moves on discount, carries high return rates or ships at a loss is a candidate to reduce or remove, regardless of how it looks on the gross margin report. Linking purchasing to contribution rather than to gross margin is one of the largest changes we make in an e-commerce engagement.