Paid advertising is the fastest way to grow a young consumer brand — and the fastest way to burn borrowed money. The difference between the two outcomes is almost always the same: whether the founder knew their unit economics before scaling up.
“Unit economics” just means: how much money do you make (or lose) on each customer? Here are the numbers that matter, how to calculate them, and a simple test for whether borrowing for ads is a good idea.
Number 1: Average order value (AOV)
AOV = total revenue ÷ number of orders, measured over a recent period (excluding GST).
If your store made $42,000 from 600 orders last month, your AOV is $70.
Raising AOV — through bundles, free-shipping thresholds, or upsells — is one of the quickest ways to improve every other number on this list.
Number 2: Contribution margin per order
This is what’s left from each order after all the costs that come with that order:
- product cost (landed, including freight and duty),
- pick, pack and shipping,
- payment processing and platform fees,
- packaging,
- average discount,
- an allowance for returns and refunds.
Example: AOV $70. Product $21, shipping and packing $9, fees $3, packaging $1.50, average discount $3.50, returns allowance $2. Total $40. Contribution: $30 per order, or about 43%.
Notice this doesn’t include ads yet. That’s deliberate — ads are what we’re testing.
Number 3: Customer acquisition cost (CAC)
CAC = total marketing spend ÷ new customers acquired in the same period.
If you spent $9,000 on ads and gained 360 new customers, CAC is $25.
Be honest here: include agency fees, creator payments and tools, not just media spend.
Number 4: Break-even ROAS
Return on ad spend is revenue divided by ad spend. Break-even ROAS = 1 ÷ contribution margin (as a decimal).
With a 43% contribution margin, break-even ROAS is about 2.33. At 2.33, each dollar of ads brings in $2.33 of revenue, which generates just enough contribution to pay for the dollar of ads. Below that, every sale from the campaign loses money. Above it, you’re making a contribution toward your fixed costs and profit.
The marketing and ad-spend funding page has a calculator that works this out for you.
Number 5: Payback period
How long until a new customer’s contribution covers what it cost to acquire them?
- If CAC is $25 and first-order contribution is $30, payback is immediate — the first order covers it.
- If CAC is $45 and first-order contribution is $30, you need a second order to break even. If customers typically reorder within 60 days, payback is about 60 days.
For borrowing decisions, shorter payback is safer. A loan or line of credit needs to be repaid from real cash, not from customer lifetime value that might arrive in two years.
The “should I borrow for ads?” test
| Question | Green light | Red light |
|---|---|---|
| Is blended ROAS above break-even? | Comfortably, for 2–3 months | Only on good weeks |
| Is first-order payback short? | Within a few weeks | Depends on hoped-for repeats |
| Do results hold as spend rises? | Tested at higher budgets | Never tested above current spend |
| Is stock available to fulfil demand? | Yes, or funded too | Would sell out mid-campaign |
| Could you survive a bad month? | Yes | Repayments would be missed |
Mostly green: funding a bigger ad budget is a reasonable growth move. Mostly red: work on the numbers first.
How to improve the numbers before you borrow
- Raise AOV: bundles, “complete the look”, free-shipping thresholds.
- Cut per-order costs: renegotiate shipping, lighten packaging, reduce returns with better size guides and photos.
- Price properly: many young brands underprice. A small price rise can transform contribution margin.
- Improve conversion: faster site, clearer product pages, better reviews display. Better conversion lowers CAC without spending more.
- Focus spend: put budget behind your best-margin products and best-performing audiences.
Watch out for platform maths
Ad platforms report their own ROAS, and each tends to claim credit generously. Cross-check with your marketing efficiency ratio (MER): total revenue ÷ total marketing spend. If Meta says ROAS is 4 but your MER is 1.8, trust the MER.
Also expect costs to rise at peak times. Clicks around Black Friday are much more competitive, so don’t assume your October CAC will hold in late November. Our peak season guide covers this.
A quick worked example
Example scenario — generic and illustrative only. A Hamilton pet-treats brand has an AOV of $62 and a contribution margin of 48% ($29.76 per order). Break-even ROAS is 1 ÷ 0.48 ≈ 2.08. Over the last three months, blended MER has sat around 2.9, and 35% of customers reorder within 45 days.
The founders want to lift monthly ad spend from $8,000 to $14,000 for spring. At a more conservative ROAS of 2.5 (assuming efficiency drops as spend rises), $14,000 of ads brings in $35,000 of revenue and $16,800 of contribution — leaving $2,800 above the ad spend in the first month, before repeat orders. The numbers support scaling, with a stop-loss if blended ROAS falls below 2.2 for two weeks.
When the numbers work
If your unit economics are strong, a business loan or line of credit can let you scale faster than cash flow would allow. Businesses trading about six months or more may access unsecured funding sized to turnover; newer brands can borrow $20,000 to $1m against NZ property they or a supporting party own.
Send an enquiry — it takes about 60 seconds and won’t affect your credit score — and a lending specialist will call to talk through funding that matches your campaign plan.