Understanding Your Unit Economics Before Investing in Paid Advertising

At SWTCH HOUSE, understanding our clients’ unit economics is not just important, it's crucial. It plays a significant role in shaping ad campaigns that are not only effective but also in line with your financial objectives. This ensures that your marketing efforts contribute positively to your bottom line.

Unit economics involves understanding the profitability of selling a single product. Key metrics include:

• Customer Acquisition Cost (CAC): The cost of acquiring one customer.

• Average Order Value (AOV): The average amount spent by a customer in a single transaction.

• Gross Margin: The difference between the revenue from selling the product and the cost of goods sold (COGS).

• Lifetime Value (LTV): The total revenue expected from a customer over their entire relationship with the business.

• Contribution Margin: The revenue from a product minus the variable costs associated with selling that product (COGS + CAC).

Understaning all of this, also helps us when we're creating specific ad objectives together,brainstorming promotions, collaborations, free shipping thresholds, etc...

Without this knowledge, we can still do all of these things and generate you sales, but we want to ensure that you're also making a great ROI.