Solved: High Ad Costs Impacting E-commerce Profitability?

Hi there,

Thanks for reaching out.

That's a common question and a massive point of confusion for anyone starting out in ecommerce. The short answer is yes, a cost of €20-€25 per sale is entirely possible, even normal. But hearing that number and thinking it makes your business "almost impossible" is looking at the problem from completely the wrong end. You're asking "what will it cost?", when the only question that actually matters is "how much can I afford to pay to get a customer?".

Let's unpack this because figuring this out is the difference between burning through cash and actually building a profitable business. The people selling €10 items aren't making a profit on that first sale. They're playing a different, much longer game. I'll give you some initial thoughts on how you can do the same.

We'll need to look at the maths, not the myths...

First off, anyone who gives you a single, fixed number for ad costs is guessing. There is no magic number. The final cost per purchase is a direct result of two main variables: how much you pay for a visitor (Cost Per Click, or CPC), and what percentage of those visitors actually buy something (your Conversion Rate, or CR).

The formula is simple: Cost Per Purchase = CPC / Conversion Rate

From my experience running campaigns for lots of different ecommerce brands, the numbers can swing wildly. In developed countries like Germany, the UK, or the US, a CPC on Meta (Facebook/Instagram) often lands somewhere between £0.50 and £1.50. For an ecommerce store, a typical conversion rate is somewhere between 2% and 5%. Of course, this is dependant on your website, your product, your price, and a dozen other things.

But let's just use those numbers to see the range of possibilities. It's not a prediction, it's just to show you how the mechanics work.

As you can see, the €20-€25 figure you heard slots right into that 'Average Case' scenario. It's a perfectly realistic number. It could be lower if you have a brilliant website and a must-have product, or it could be much, much higher if your store is clunky or your ads aren't hitting the right people. We've had clients in the ecommerce space get incredible returns, like a 691% return for a women's apparel brand, but that didn't happen by accident. It happened because we stopped obsessing over the cost of the first sale and focused on the real prize.

You probably should forget about Cost Per Sale for now...

This is the most important bit of advice I can give you. Stop thinking about the profit on a single transaction. It’s a dead-end that will paralyse you. The secret to how people sell a €10 item profitably through ads is that they almost never are profitable on that first €10 sale. They are acquiring a customer, not just making a sale.

The metric that unlocks profitable advertising is Customer Lifetime Value (LTV). This tells you how much gross profit a single customer is worth to your business over the entire time they shop with you. Once you know this number, you know how much you can afford to spend to get them in the door.

The calculation is pretty straightforward. You need three bits of information:

1. Average Revenue Per Account (ARPA): How much does an average customer spend with you each month? If they buy once and never again, you'll need to think about this differently (e.g., average order value), but for now, let's assume you want repeat business. Let's imagine your average customer spends €40 a month.

2. Gross Margin %: What's your profit on that revenue after the cost of the goods? If your product costs you €16 to make and you sell it for €40, your gross profit is €24, so your gross margin is 60%.

3. Monthly Churn Rate: What percentage of your customers do you lose each month? This is the hardest to know at the start, but you have to estimate. Let's be conservative and say you lose 10% of your customers every month.

Now, we put it into the formula:

LTV = (ARPA * Gross Margin %) / Monthly Churn Rate

Let's plug in our imaginary numbers:

LTV = (€40 * 0.60) / 0.10
LTV = €24 / 0.10
LTV = €240

This changes everything. In this hypothetical scenario, every customer you acquire is worth €240 in gross profit to your business. This is the number that matters. This is the number that let's you compete. That €10 item is no longer a €10 sale; it's the gateway to a €240 relationship.

I'd say you need to understand your allowable Customer Acquisition Cost (CAC)...

Now that you have your LTV, you can work backwards to figure out what you can actually afford to spend to get a customer. This is your Customer Acquisition Cost, or CAC. A healthy, sustainable business model usually aims for a LTV to CAC ratio of at least 3:1. This means for every euro you spend acquiring a customer, you should get at least three euros back in lifetime value.

So, using our LTV of €240:

Max Affordable CAC = LTV / 3
Max Affordable CAC = €240 / 3
Max Affordable CAC = €80

Suddenly, that €20-€25 cost per sale doesn't look so scary, does it? It looks like an absolute bargain. If you can acquire a customer for €25 who is going to be worth €240 to you over time, you should be spending that €25 all day long, as fast as you can. This is the maths that allows businesses to scale aggressively. They understand their unit economics.

This is precisely how we approach campaigns for our clients. I remember one campaign we ran for a subscription box company that hit a 1000% Return On Ad Spend. We didn't get there by pinching pennies on the initial CAC; we got there by understanding the LTV of a subscriber and building a system to acquire them profitably within that LTV:CAC framework. You're not buying a sale; you're buying a future revenue stream.

You'll need a proper funnel, not just an ad...

These numbers don't exist in a vacuum. You can't just set your budget and hope for the best. You need a machine to turn strangers into customers, and then into repeat customers. In paid advertising, we call this a funnel. For an ecommerce store on Meta, it usually has three stages, and you should be running seperate campaigns for each.

1. Top of Funnel (ToFu) - Prospecting:
This is where you reach cold audiences—people who have never heard of you. Your goal here is to introduce your brand and products and drive initial traffic to your site. This is where you'll spend most of your budget and where your CAC will be at its highest (but hopefully still within your €80 target). You'll test audiences based on interests, demographics, and behaviours. If you sell hiking gear, you don't just target "hiking." It's too broad. You target followers of specific outdoor brands, members of hiking groups, people interested in specific trails or national parks. Get specific. These are your most expensive, but most important, conversions.

2. Middle of Funnel (MoFu) - Retargeting:
This is for people who have shown some interest but didn't buy. They've visited your website, looked at a product, or watched one of your videos. You'll run seperate ads to this audience, reminding them of what they looked at, maybe showing testimonials or different product angles. The cost to convert these people is much, much lower than at the ToFu stage. You're just nudging them over the line.

3. Bottom of Funnel (BoFu) - Conversion & Retention:
This is for the hottest audience. People who added a product to their cart but didn't check out. You hit them with ads saying "Did you forget something?" or maybe even a small discount to seal the deal. This stage also includes your existing customers. You run ads to them to encourage a second or third purchase, which is vital for increasing your LTV. Selling to an existing customer is far cheaper than acquiring a new one.

Structuring your campaigns this way is non-negotiable if you want to be efficient with your ad spend.

We'll need to look at your offer and creative...

All the maths and structure in the world won't help if what you're putting in front of people is rubbish. Your CPC and Conversion Rate are directly influenced by the quality of your ads and your product presentation.

Look at your ad metrics. If you have a really low Click-Through Rate (CTR), it means your ad isn't grabbing attention. The image or video is boring, or the headline doesn't speak to the audience. This is where you need to get creative. Test different formats. We've had surprising success with User-Generated Content (UGC) style videos even for B2B software clients, because they feel authentic and real. For ecommerce, this is a goldmine. Show real people using and loving your product.

I like using the Before-After-Bridge framework for ad copy. It’s simple and powerful.
Before: Describe the problem. "Tired of flimsy wallets that fall apart after a year?"
After: Describe the solution. "Imagine a wallet so durable, it's guaranteed for life."
Bridge: Your product is the bridge. "Our full-grain leather wallet is the bridge. Built to last a lifetime. Shop now."

This simple structure connects your product to a real-world frustration and a desired outcome. It's infinitely more powerful than just listing features.

You probably should prepare for the reality of your website...

Finally, a bit of tough love. I've seen countless businesses burn thousands on ads, blaming Facebook or Google, when the real problem was their own website. You can have the best ads in the world, but if they send people to a slow, confusing, or untrustworthy-looking store, you will get zero sales. Your conversion rate will be garbage, and your cost per purchase will skyrocket.

Before you spend a single euro on ads, take a hard, honest look at your store.
-> Is it fast to load on mobile?
-> Are the product photos high-quality? Can people see the details?
-> Are the product descriptions clear and persuasive? Do they answer questions?
-> Does it look proffessional and trustworthy? Do you have customer reviews, clear shipping info, an easy returns policy, a contact page? People are being asked to give their credit card details to a stranger on the internet. You have to earn their trust.

Often, the cheapest way to lower your ad costs is to invest in improving your website's conversion rate first. A 1% increase in your conversion rate can cut your cost per purchase in half.

This is the main advice I have for you:

I know this is a lot to take in. The key takeaway is that you need to shift your thinking from 'cost' to 'investment'. You're not spending €25 on a sale, you're investing €25 to acquire a €240 asset. Here is a summary of the steps you need to take.

Getting this right involves a lot of moving parts, continuous testing, and optimisation. It’s not something you can set and forget. It requires experience to know which levers to pull and when, from audience selection to creative testing to budget allocation across the funnel.

If you get the foundations right, you can build a very profitable business. If you'd like to discuss how we could help you build this system for your brand, we offer a free, no-obligation initial consultation where we can look at your specific situation in more detail.

Hope that helps clear things up.

Regards,

Team @ Lukas Holschuh