Reporting for DTC brands that leads to decisions: contribution margin, MER and new customers
Key takeaways
- Platform ROAS shows what each platform wants credit for. MER and contribution margin show whether the brand made money.
- Split new and returning customers. Growth comes from the first group.
- Give every number a threshold and the decision it triggers, before the week starts.
Say your brand did $400,000 in revenue last month on $100,000 of ad spend.
Revenue divided by ad spend is 4. That is your MER, your marketing efficiency ratio. Meta says its ROAS was 3.1. Everyone relaxes.
Now split the revenue. $280,000 came from returning customers. $120,000 came from new ones.
New-customer revenue divided by ad spend is 1.2.
Take out product cost at 35% and shipping, packaging and payment fees at 15%. Every new-customer dollar keeps 50 cents before ads. $120,000 of new-customer revenue leaves $60,000.
You spent $100,000 to get it.
You lost about $40,000 buying new customers last month. Some of that spend also brought returning customers back, so the true number is a little better. It is nowhere near the 4 on the report.
That loss can be fine if second and third orders pay it back. You only know if the report shows it.
Why the deck didn't help
The weekly report was 30 slides. Impressions, click-through rate, CPM, ROAS by campaign, ROAS by ad set, top creatives.
It took an hour to read. Nobody left the meeting with a decision.
A report is finished when someone knows what to do on Monday.
The excuse: "We need all the data"
You need all the data stored. You don't need it in the meeting.
Platform metrics are for the people running the platforms. The owner's report answers three questions. Did we make money after marketing? Are we buying new customers at a price we can afford? Is the blended number moving the right way?
The one-page report
- Contribution margin after marketing. Revenue minus product cost, shipping, fees and ad spend. Weekly and month to date.
- New-customer revenue and new-customer MER. From your store data, not the ad platforms. Hold your cost per new customer against first-order margin and against what the orders after it earn.
- Blended MER. Total revenue divided by total ad spend. One trend line the whole team watches.
- A threshold and a decision for each number. For example: if new-customer MER sits below the line you set for two weeks, prospecting budget drops 15% and new creative goes into testing. Written down before the week starts.
- A 30-minute meeting that ends in decisions. Who does what, by when. Platform detail lives in an appendix for anyone who wants it.
I have helped scale four DTC brands to seven, eight and nine figures in revenue. The report I want in front of the owner fits on one page.
Frequently asked questions.
What is MER in ecommerce?
MER, or marketing efficiency ratio, is total revenue divided by total marketing spend for the same period. Because it uses your store's revenue instead of what each ad platform claims, it gives one blended view of how hard marketing is working. Split it into new and returning customers to see what growth costs.
What is a good MER for a DTC brand?
It depends on your margins. Find your contribution margin before ads, as a share of revenue. Break-even new-customer MER is 1 divided by that share, so a brand that keeps 50 cents of each dollar breaks even at 2.0. Above that, first orders pay for themselves. Below it, repeat orders have to pay the difference.
How do you calculate contribution margin for a DTC brand?
Start with revenue and subtract product cost, shipping and packaging, payment and platform fees, and marketing spend. What is left is contribution margin after marketing, the money available for overhead and profit. Track it weekly and month to date, and split it by new and returning customers.