Part 1 — Unit economics before ad accounts
Compute contribution margin, breakeven ROAS, and allowable CAC — the three numbers every later decision depends on.
Most Google Ads failures are decided before the account is opened. Not in targeting, not in creative — in the absence of three numbers: what an order contributes after costs, what ROAS that implies as a floor, and what you can afford to pay for a customer. Skip these and every later decision is a guess wearing a dashboard. This course starts here because everything else in it — feed, structure, bidding, scaling — is downstream of the math.
Contribution margin: the only number that pays bills
Take your average order value and subtract everything it costs to deliver: landed product cost, shipping and fulfillment, payment and platform fees, and a realistic returns allowance. What remains is contribution margin — the money available to pay for advertising and then, ideally, to keep. An $85 AOV with $32 COGS, $8 shipping, and 3.5% fees keeps roughly $42. That $42 is your entire advertising universe for that order: spend less than it and you profit, spend more and you have bought a loss.
Breakeven ROAS: margin, inverted
Breakeven ROAS is contribution margin expressed the way ad platforms speak: AOV divided by contribution per order. The $85/$42 store above breaks even at almost exactly 2.0 — every campaign below that is destroying money with each conversion it celebrates. The trap is that margin varies across a catalog, often 20 points or more between categories, which means one account-wide ROAS target is wrong for nearly everything it governs. Compute breakeven per margin band — the breakeven ROAS calculator does it in seconds — and keep the bands; you will structure campaigns around them in part 3.
Write the three numbers down before continuing: contribution margin per order (by band if margins vary), breakeven ROAS per band, and allowable CAC. Every subsequent part of this course assumes you have them.
The payback ceiling: cash decides, not LTV
Repeat purchases let you pay more than first-order breakeven for a customer — but only as fast as your cash position allows. A brand with strong 12-month LTV and a 9-month payback can still suffocate scaling, because every new cohort locks up cash for three quarters. Set an explicit payback ceiling that matches your balance sheet, and let it cap acquisition aggression. The full treatment of honest CAC, margin-based LTV, and MER guardrails is in our ecommerce unit economics guide — read it alongside this part if the terms are new.
One more discipline before moving on: decide now that you will bid to margin, not revenue. Revenue-ROAS treats a 70%-margin sale and a 15%-margin sale as equals, and Smart Bidding will obediently scale whichever looks better in revenue terms — usually the wrong one. The mechanics of profit-on-ad-spend bidding come in part 6; the commitment to it starts here.