AgenCFO Ecommerce Profit Matrix

Hey there, my name is Joey.

I'm the founder of Agent cfo.

We're the CFO firm for ecom brands and agencies.

This video is for you if you are tired of losing money on ads or if you are just uncertain of how much you can spend on ads in order to grow your business.

This is the exact tool that we use with our clients and one that we just use to double one of our clients ad spend while keeping profitability high.

So I'm just going to walk you through exactly what you do here and then how you read the results in order to make better decisions in your business and adjust your spend based on the stage that your business is actually in.

So this is called the Ecom profit matrix.

What we're trying to establish here is Based on your business's cost structure, revenue and ad performance.

We want to see exactly how much you can spend at the roas that you're getting in order to still make a profit.

So we're going to start with step one here.

If you click on it, it will even highlight what you can do.

So you first have the option to add in any other revenue that you have outside of your paid ads funnel.

If you leave this zero, you're just going to get your first order or first month profitability.

So that is also useful.

However, if you know that you have a certain amount in recurring sales, you can put that in because this is of course helpful to offset any any cost that you have now and still like have a profitable month even though maybe your first order is unprofitable.

So you can put in any other revenue that you have here.

Then some then some of the key points of your cost.

So you have your refund rate, any payment fees, any other variable cost that you have.

You can hover over the info boxes to see exactly what is expected to be put in.

Then you got Then we have your costs of goods so you have your actual product cost, your shipping fees, any other loaded cost that you have.

Make sure that you have these numbers accurate as this is one of the biggest drivers of your profit.

lastly we got your sales and marketing expenses, if you have any agencies on a percentage of ad spend, you can put that in here or if it's fixed fees in there, any other sales cost and then any of your fixed costs.

So your opex is what you put in here.

Then once you're happy with these inputs then you Go into step two.

You set your ad spend range and your rollers range.

Everyone is at a different level.

If you're spending less than this, put this to a lower range.

Maybe you're spending only 0 to 100k a month.

and of course this is just the range you want to see, not like what you actually may spend.

if you're already much bigger, maybe you're spending up to 5 million a month.

You can just change this however you'd like.

same for the roas, you know, whatever range you're kind of getting, put that in here so you can see exactly what happens.

If it goes up or down a little bit, then we're going to look at the actual performance.

So I'm going to lower this a little bit.

Now here we see exactly what happens at a different spend level and a different ROAS level.

So you can see that we spent 60k and just got a 1x roas.

We're going to be losing money because we have all of our other costs, we have our fixed costs, and that's why we just are not going to act, actually make a profit here.

it's only once we reach a 3x ROAS that we start to make a profit.

and that is what you can also see here in your break even line.

This will already select exactly for you at what spend level you're going to be breaking even.

now the mechanics here, of course, work from this perspective that your revenue needs to offset your fixed cost.

That is why you see that at a higher spend level, you can get away with a lower roas because you will just make more money to offset your fixed cost.

Because while your ad spend scales up, your fixed costs stay fixed.

And that is why in so many cases we see that you can actually spend a lot more than you think.

And you might even have to spend more in order to get these economies of scale and to get your fixed cost to a much lower number.

So that is why you see your ROAS requirement go down as you scale spend.

Use this to see where you're at.

There's a couple of additional things you can do in here that can be very useful.

One is you can toggle this to contribution margin.

So here you can see exactly what your contribution margin would be.

So this is before any of your fixed costs.

This is still a very useful thing to look at because what this means is the point at which at least your ads start to contribute positively to your business, and to your bottom line.

So, at this point, you know, you might still make a loss because you know you have these fixed cost to cover.

But at least you know, you know that if you're spending around 200k, as long as you get like, you know, the 1.8x ROAS, you know least that your ad spend is worth it because it's helping you cover your fixed costs.

But I still prefer to look at net profit because ultimately you do just have to cover all of your costs.

And that is what this tells you.

Also last thing, if you do prefer to look at percentages, you can toggle this percentage.

And so if you're aiming for like a specific profit margin or a specific contribution margin, you can look in this view.

so for example, if you want to stay at a 10% profitability, you can now see exactly what you need to hit at your spend level.

and so of course as you put in other numbers, these things will change.

So if you do have organic sales, that will help you just be more profitable, which means you can spend more.

If you have more returning customer sales, maybe you got also like 50k in that a month.

Again, you can spend a lot more or can afford a much lower ROAS and still be profitable.

So that is the whole game you're playing.

all right, if you have any questions on this, you can just book a call directly with me.

Can either click here to book a call button or you can press here, or you can go to our case studies and see a lot more about the things we do.

All right, hope this is useful.

Good luck.