Commerce Growth & Business Cases
DTC Economics Model
Model the economics of a direct-to-consumer channel.
Enter monthly assumptions for traffic, conversion, order value, acquisition, retention and cost. The model shows contribution, operating profit, customer acquisition cost, a 12-month projection and the assumptions with the largest effect on profit.
The three scenarios are illustrative, not industry benchmarks. Replace them with your own figures. Inputs stay in your browser and are not stored; use “Copy scenario link” to keep or share a scenario.
Key results
Save a baseline to compare scenarios.
Profit levers
Each assumption is improved by 10% on its own. Bars show the change in 12-month operating profit. Effects are not additive.
12-month projection
View projection as a table
12-month totals
Path to profit
Health checks
Rules of thumb, not standards. Appropriate thresholds depend on category, margin structure and cash position.
Unit economics
Monthly P&L (month 1)
How this model works
- Orders = sessions × conversion rate. Gross revenue = orders × average order value after discounts.
- Net revenue deducts returns and refunds. Returned items are assumed to be restocked, so product cost (COGS) applies to net revenue only.
- Payment fees apply to gross revenue, because processors generally retain fees on refunded orders.
- Fulfillment is a cost per order, net of any shipping charged to customers.
- CM1 (contribution before marketing) = net revenue − COGS − fulfillment − payment fees. CM2 deducts all marketing. Operating profit deducts fixed costs. It is pre-tax and excludes inventory purchases and other working capital.
- Ad spend = sessions × paid share × cost per paid session. Blended CAC = all marketing ÷ new customers, where new customers = orders × (1 − returning-customer share).
- Lifetime orders per customer are estimated as 1 ÷ (1 − returning-customer share). This steady-state estimate is not a cohort analysis. LTV = contribution per order × lifetime orders.
- Projection: sessions grow at the monthly growth rate. All rates stay constant, ad spend scales with sessions, and other marketing and fixed costs stay flat.
- Profit levers improve one assumption by 10% at a time and rerun the 12-month projection.
Illustrative planning tool, not financial advice. Validate results against your own financial records before making decisions.
Questions about the model
What is MER?
MER (marketing efficiency ratio) is net revenue divided by total marketing spend, including ad spend, agency fees, creators and tools. It shows how much revenue each marketing dollar supports across all channels, without relying on platform attribution. To cover marketing, MER must be at least 1 ÷ the contribution margin before marketing. With a 50% margin, that is 2.0; covering fixed costs requires more.
What LTV:CAC ratio is healthy?
A common rule of thumb is 3 or higher, where lifetime value is measured as contribution after product, fulfillment, payment and returns costs, not revenue. Below about 1.5, acquisition is unlikely to pay back. The right threshold also depends on how quickly customers repurchase and how much cash the business can commit before payback.
How is the break-even conversion rate calculated?
Break-even conversion rate = current conversion rate × (marketing + fixed costs) ÷ contribution before marketing (CM1). It assumes traffic, marketing spend, order value and unit costs stay the same, so contribution rises in proportion to orders. If contribution per order is zero or negative, no conversion rate reaches break-even.
Discuss the opportunity in front of you
You do not need a finished brief to begin. A conversation can help establish what needs to be assessed and whether Kappa Strategy is a useful fit.