I typed my net margin after ads into the margin field and now every campaign looks unprofitable: what did I do wrong?
The field asks for your margin before ads, and you gave it a margin that already has ad cost taken out. The calculator subtracts spend itself, so the ads were counted twice. Work the margin out again from price minus product, shipping and fees only, and the verdict will make sense. ROAS itself is untouched; only the verdict and the estimated profit change.
How the mistake happens
Monthly reports usually end with a 'net profit' line after everything, marketing included. It is tempting because it is ready-made, but it is the wrong figure for this field. The ROAS calculator works out estimated profit as revenue × margin − ad spend. In other words, it assumes ads have not been taken off the margin yet, and then takes them off itself.
The example, in numbers
A store has a 35% margin before ads, and its campaign brought 10,000 AED in sales from 2,000 AED of spend. Ads took 20% of sales, so net margin after ads is 35% − 20% = 15%. Now compare the two entries:
- Wrong entry, 15% margin: ROAS 5x, break-even 6.67x, verdict below break-even, estimated loss 500.
- Right entry, 35% margin: ROAS 5x, break-even 2.86x, verdict above break-even, estimated profit 1,500.
Notice that the correct profit of 1,500 is exactly 15% of 10,000. The net margin you entered was right in itself, but it is the answer to the question, not the input. The calculator would have given you that figure if you had fed it the margin before ads.
Signs you have made this mistake
- Nearly every campaign shows a loss, including ones your bank balance says are profitable.
- The break-even figure looks far higher than you would expect for your kind of products.
- The margin you entered came from a profit and loss report, below the marketing line.
- Your margin moves every month with the ad budget although prices and costs are steady. Margin before ads does not depend on ad spend.
How to fix the number
Go back to a single order: selling price minus product cost, shipping, packaging, marketplace and payment fees, divided by the price. Take off nothing to do with advertising, and none of your fixed costs such as rent or salaries either, since those are not part of an order's margin. The Profit margin calculator does this, and if you want to see the effect of fixed costs, that is the job of the Break-even calculator.
If you only have the net margin and the ad share of sales, adding them gives you the margin before ads, roughly: 15% + 20% = 35%, provided the net margin had only advertising taken off it and no fixed costs.
Common questions
Does ROAS change if I get the margin wrong?
No. ROAS and ad share do not depend on the margin. Only break-even, the verdict and estimated profit change.
Should I take salaries and rent off the margin?
No. The margin here is per order. Fixed costs are covered out of profit after ads.
Will the calculator warn me if the margin is the wrong kind?
It cannot: any number from 0 to 100 is valid to it. Which margin you enter is up to you.