How to Budget Ad Spend Against Real Contribution Margin
Set your advertising budget from contribution margin per unit, not from a target ACOS you inherited from a forum post. The method has four steps: calculate what a unit actually contributes after every variable cost, convert that into a break-even advertising cost of sale, set your target below break-even by whatever margin the business needs, then budget each SKU separately. Most sellers skip the first step, which makes the other three arithmetic performed on a number that is wrong. Here is the whole calculation, worked on a real set of figures. Step 1: Calculate true contribution per unit Contribution margin is what one incremental sale adds to the business after every cost that varies with that sale. Start from selling price and subtract, in order: Landed unit cost, including freight,…



