Finance & Unit Economics (Margin Ladder, CAC/LTV, Cash Flow)

Ecommerce growth isn’t just about driving sales. It’s about making sure those sales add up to profit. For manufacturers used to wholesale, this can be a shock. Selling direct introduces new costs — packaging, fulfilment, payment fees, returns, advertising – that eat into margins quickly. Understanding your unit economics gives you clarity on whether D2C is sustainable and how fast you can scale.

The Margin Ladder

The margin ladder is a step-by-step breakdown of how £100 in sales reduces once costs are applied. It shows where money flows out and what’s left at each stage.

Imagine a customer spends £100 on your site:

• £16.67 goes straight to VAT, leaving £83.33.

• £35 might cover the cost to make or buy the product, leaving £48.33.

• £8 could be spent on picking, packing, and delivery, leaving £40.33.

• £2.50 might go on payment fees, leaving £37.83.

• £15 on marketing spend reduces this further to £22.83.

That £22.83 is your contribution profit. It covers overheads and, ideally, leaves you with a profit. By mapping this out, you can see where costs are highest and where efficiency improvements will have the most impact.

Customer Acquisition Cost (CAC) and Lifetime Value (LTV)

Unit economics aren’t only about one order. They’re about how much it costs to win a customer and how much value that customer brings over time.

Customer Acquisition Cost (CAC) is the average amount you spend on marketing to win a single customer. If you spend £1,000 on ads and bring in 50 new customers, your CAC is £20.

Lifetime Value (LTV) is the revenue or profit that customer generates across their relationship with you. If a customer buys five times over two years and each order contributes £15 profit, their LTV is £75.

The balance between CAC and LTV is what matters. If you spend £20 to acquire a customer and they generate £75 profit over time, the economics are strong. If CAC outweighs LTV, you’re burning cash.

Cash Flow Timing

Even if margins look good on paper, cash flow timing can cause problems. Advertising is usually paid upfront. Stock may be bought months before it sells. Refunds reduce revenue after the fact. If you don’t model these timings, you may run out of cash before growth pays back.

For example, fast-moving consumer goods often require payback within one or two months. Higher-value products may accept longer windows, but you need a clear view of how much capital you can afford to tie up and for how long.

A simple 12-month cash flow forecast, with best, base, and worst-case scenarios, helps avoid surprises. It shows when extra funding or reserves may be needed to smooth peaks and troughs.

Why This Matters

Understanding finance and unit economics isn’t about being cautious or risk-averse. It’s about giving you the confidence to grow without nasty surprises. Many businesses fail not because demand is lacking, but because margins are unclear or cash flow is mismanaged.

By tracking the margin ladder, balancing CAC and LTV, and modelling cash flow, you can spot problems early and make better investment decisions. That clarity makes D2C less of a gamble and more of a controlled growth strategy.

Key Takeaway

Profitability in ecommerce isn’t about headline revenue. It’s about the pounds left after costs, the value each customer brings over time, and whether cash flow can support growth. Manufacturers who master these basics can scale sustainably, while those who ignore them risk chasing vanity sales that drain resources.