❗More revenue doesn’t always mean more profit ❗
In this video, I break down two game-changing concepts every brand founder needs to know:
1️⃣ Contribution margin dollars
2️⃣ Incrementality (or marginal impact)
What’s the key takeaway?
If your ad spend scaling strategy isn’t generating more contribution margin dollars, your profits are shrinking—not growing.
Let’s unpack an example:
A brand jumps from $550K to $1M in revenue by increasing ad spend. Sounds like a win, right? Except…
👉 They actually lost $10K in profit.
Why?
It all comes down to the break-even marketing efficiency ratio (MER) and the diminishing returns of scaling ad spend.
Ignoring these metrics could sink your bottom line.
This is where a fractional CFO (like us at Free to Grow CFO) who specializes in eCommerce comes in.
We can really help take your ad scaling decision-making to the next level.
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Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
Hey, what's happening to everyone today? I want to record a video that walks you through a simple example that helps illustrate 2 really important concepts that you need to use when you're setting revenue and AD spend targets. The first one is the concept of contribution margin dollars, and the second one is the concept of marginality or incremental marketing efficiency ratio. So let's walk through this example. Let's assume last month, which we're going to call the baseline. Month, your agency successfully generated 550,000 in revenue on 200K in AD spend. So that's a 2.7 Mer. As you can see, your brand in this example has a 50% margin before ad spend, so contribution margin dollars. The formula would be 550 * 50% because that's how much money's leftover before ad spend after subtracting for landed product costs, shipping and fulfillment, and credit card fees after you multiply 550 * 50%. Back out the 200 K and ad spend that gives us contribution margin dollars. What's contribution margin dollars? That's the number of dollars leftover after spending on all your variable costs including ad spend. And that's the number of dollars that are leftover to cover overhead and hopefully overcome overhead, meaning we cover all of our overhead and there are dollars left over that go straight to the bottom line. So the way that we look at assessing the profitability. Impact of ad spend scaling is that scaling ad spend needs to generate more contribution margin dollars, not just more revenue, more contribution margin dollars. Because if you're scaling ad spend and contribution margin dollars are going down, that means there's less margin dollars after covering all your variable costs including ad spend to cover fixed overhead and and get dropped to the bottom line. So in this case, if you have a 50% margin before ad spend. That means your break even marketing efficiency ratio, which is revenue divided by its business 2. What does this say? This is saying that A2 Mer, your ad spend equals 50% of revenue. So if you have a 50% margin before ad spend and then you subtract 50% ad spend to Mr. your profit or your contribution margin dollars is 0. So that's your break even Mer in this case. So let's say that this last month that you just closed out, you're ad agency spent 200 K at a 2.75 Mer. Which means 550K in revenue. Let's say that you have a goal to get to 1,000,000 in revenue. And so you're trying to figure out how to set targets. So here's a big issue that I see time and time again. Agencies know and you probably know if you're a brand founder that you're going to see diminishing returns, meaning you're Mr. is going to drop to some level over time. All other things held equal, there are impacts of, you know, repeat purchase and whatnot. TV that you can change that can impact this, but let's just hold all that equal as you scale ad spend your Mr. comes down right? That's just how add channels work. You see the law of diminishing returns. So let's say that you tell your agency, hey, I'm willing for you to take a 2.3 Mer to get to 1,000,000 bucks, which means 435 K dad spent sounds great right? They spend 435 they get you to a million. Seems like everything should be rock solid. Actually, it's not. Because if you look and I'm gonna, I'm gonna show you why this happens. In this particular example, they generated 75K in contribution margin dollars, which is our North star in terms of assessing financial impact of scaling, of scaling advertising spend 75 K on 200 K an ad spend and 5:50 in revenue. But to get to 1,000,000 out of 2.3 Mer for this new target month that that we're, we're trying to figure out how to hit. The only generate 65,000 in margin dollars. So why did contribution margin go down by 10K if they generated a $450, 000 more in ad spend? It's because of something called incrementality or marginal impact of increasing ad spend. So if we look at the incremental or marginal impact, marginal means what is the impact of the next dollar spent. So to go from 5:50 to a million, we had to generate 450K in revenue. To go from 200 and add speed to 435, we spent 235 giving us a 1.91 Mer. What? What's magical about that? Not good magic unfortunately. Bad magic is that 1.91 is less than our break even Mer of two. And So what we actually see is we take 450 and multiply it by 50%. That's $225,000 in margin dollars before ad spend. Then you subtract 235 an ad spend and guess what? We lost $10,000 on that incremental. On on that incremental increase of 235 K an ad spend, so all other things held equal, it would have been better to just stay at 5:50 in revenue AT200K Netspend, we actually make $75,000 in in margin versus 65,000. So in this case, all other factors held equal in the fixed overhead cost structure of the business, we actually made $10,000 less in bottom line profit by scaling from 500 and. 50K in revenue to $1,000,000 in revenue. This is why it's so important to understand the concepts of contribution, margin dollars and incrementality or marginal decision making. Not understanding these things could be catastrophic to your bottom line profit. That's where fractional CFO's who specialize in ecommerce like free to go CFO. This is where we can really help take your ad scaling decision making to the next level. I hope this video and this example I put together was helpful.
Everyone talks about hitting $10M in revenue. Nobody talks about how many brands crash and burn getting there.
After working with dozens of scaling brands, here are the top 3 mistakes I see DTC brands make on the road from $1M to $10M in revenue:
1️⃣ Overbuying Inventory
Many brands fear missing out on sales, but overcommitting to stock often backfires. Unless you have ample access to capital (which is rare in 2024), it’s smarter to risk the occasional stockout than to lock up cash that could keep your business agile.
2️⃣ Overspending on Agency Fees
Marketing agencies can be valuable, but a $20K-$30K monthly retainer is unsustainable if your revenue is in the low millions. Look for an agency that works with brands your size and aligns its fees with your budget reality.
3️⃣ Skipping Monthly Financial Reviews
If you’re not reviewing both your historical financials and forecast monthly, you’re flying blind. These check-ins reveal whether you’re staying on track—and if not, they give you the chance to pivot before the cost of delay becomes too high.
What other costly mistakes do you see?
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Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
If you’re relying on one ad to carry your brand forever, you're setting yourself up for a nosedive.
Truth bomb: even the best-performing ads have a shelf life. 🔥
Here’s how to create new momentum before ad performance dips:
✨ Always be testing new ad content. ✨
Consistently refreshing your ad content isn’t just smart—it’s essential.
Regularly testing new ads keeps you ahead of the curve, fuels sustainable growth, and keeps your brand top of mind.
Don’t get comfortable—get competitive.
---
Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
If you’re running your DTC brand with a single ad spend x MER goal for the month, you’re making a HUGE mistake.
Why?
Because there’s not just one perfect ad spend x MER combination that leads to your profit goal.
In fact, there are infinite ad spend x MER pairs that can drive the same bottom-line profit dollars.
Here’s the problem—by fixating on just one target, you might be leaving money on the table, or worse, wasting it.
Instead, try this:
Build a sensitivity analysis table of different ad spend x MER scenarios that all align with your monthly net profit goal.
This gives you the flexibility to adapt your spending and strategy as conditions change while staying laser-focused on your profit target.
--
Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
Are you calculating LTV the right way?
Most DTC brands measure LTV in revenue $.
Which is not wrong—but it’s incomplete.
✔️ Revenue-based LTV is great for tracking retention.
❌ But CAC/LTV (in revenue $) tells you nothing about profitability.
Here’s the fix:
Switch to measuring CAC/LTV in contribution margin $.
Why?
Because it shows the actual value your customers bring after deducting variable costs—
The dollars that truly hit your bank account.
For DTC founders scaling through paid ads, this shift could be the game-changer you’ve been missing.
--
Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
Ignoring this metric could be costing your DTC brand big time...
Chasing top-line revenue is common in DTC, but here’s the truth:
It’s what’s left over after costs that matters.
Contribution margin dollars tell the real story.
They reveal what’s actually left after variable costs, including ad spend.
Without tracking it, scaling ad spend can tank your profitability, leaving your brand stretched too thin on cash.
So what's the solution?
Track your contribution margin dollars as closely as your revenue.
If your margins aren’t supporting your fixed costs, it’s time for a course correction.
--
Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
Most DTC brands outsource their marketing to digital agencies, ensuring their creative and ad management is top-notch. But what about the finance side of things?
It's crazy how often I see DTC biz relying on older school accountants who may lack the specific expertise needed for this industry. With rising CAC, DTC is no longer just a marketing game; it's a numbers game wrapped in a marketing cloak.
That's where a Fractional CFO comes in. A Fractional CFO provides strategic financial guidance tailored to your ecommerce needs without the commitment of a full-time hire. They bring the domain expertise that can be the key to scaling your business effectively.
If you're looking to take your ecommerce brand to the next level, consider bringing on a Fractional CFO!
Check out this 👇
The top 3 mistakes I see DTC brands make as they scale from $1m to $10m in annual revenue:
1. Purchasing way too much inventory for fear of lost sales.
Over the years I've learned it's better to risk stocking out and live to fight another day, unless you have excess access to capital, which most brands don't have in 2024.
2. Paying too much in marketing agency fees.
I'm not saying agencies are bad because they are not. But you can't pay $20k-$30k per month in agency fees if your annual revenue is only a couple million dollars per year. Choose an agency that specializes in working with brands of your size and has fees that align with your cost structure needs.
3. Not reviewing financials and a forecast every month.
At minimum, you need to review your historical financials and forecast model monthly. Why? To assess if your actual execution is on track with your plan. If not, then you make adjustments. And waiting longer than a month to adjust can be way too costly.
What else did I miss?
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Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
It’s easy to get lured in by the big-name marketing agencies, but here’s the truth:
If your DTC brand is doing just a few million in revenue, paying $20K+ per month in agency fees will eat up your margins fast.
The solution?
Align your marketing agency fees with your business size.
Don’t go for the agency that scales $50M brands—they’re not going to give you the hands-on attention your $2M brand needs.
Look for agencies that specialize in businesses at your level and have pricing that reflects your current stage.
If the fees don’t make sense for where you are today, it’s time to rethink that partnership.
--
Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
‘I’m not a numbers person.’
I’ve heard it from so many small brand founders. Thanks to the proliferation of platforms like Shopify, TikTok shop, and others, it’s easier than ever for anyone to start selling their products online. This includes the passionate problem solvers, the creatives at heart, and yes - the self proclaimed ‘non-numbers’ people.
And thank goodness for that. The democratization of ecomm for founders with little business or finance background has made for so much innovation and representation in the industry. But the reality is, for these revolutionary businesses to stay in business, they’ll need to start leading with the numbers one way or another.
If they can’t hire an in-house expert, they can contract it out with a Fractional CFO or Finance Leader. Fortunately, these fractional positions are on the rise and afford lots of flexibility and economic opportunity for both parties involved (check Kate Minogue's content for a great post on the matter, and Colson Myers if you're already on the Fractional CFO hunt).
And if they’re outsourcing other functions like marketing, their agency teams should also be operating with the core financials in mind. Even better if these agencies have their own analytics teams/tools that connect to backend sales data to drive better marketing decisions. (It almost goes without saying - Power Digital Marketing is a great example of this.)
Most importantly, though, business owners *themselves* should have a top line understanding of their unit economics and net profitability on an ongoing basis. Otherwise, they could be making business-ending decisions without even realizing it.
What are some of the best ways business owners can stay clued into the core financials in your experience? Any tools that help your teams laser-focus on the metrics that matter?
This might upset some people, but it has to be said...
Q4 is NOT the time to experiment.
Launching new SKUs and ad channels could set your DTC brand up for financial disaster.
Instead, double down on what's already working.
Focus on the SKUs and channels that you’ve tested and proven.
Otherwise, you risk wasting serious money on launches that flop at scale.
Don't gamble with your margins when every dollar counts.
--
Hi, I'm Jon Blair founder of the DTC Finance and Accounting firm Free to Grow CFO.
Want more tips on growing a profit-focused DTC brand?
Give me a follow.
Want to learn more about how Free to Grow's Accountants and CFO's can help you increase profit and cash flow as you scale?
Shoot me a DM.
Until next time, scale on!
Fractional CFO at On Demand Finance Director - Making your business more profit, in less of your time
3wEnlightening take on overlooked metrics, yo.