How to Know If Your Facebook Ads Are Actually Profitable
It is easy to get excited when you see big numbers in your Facebook dashboard. "I spent $1,000 and made $3,000!" It looks like a huge win. But are you actually making money? Once you subtract the cost of the product, shipping, taxes, and the ad spend, you might actually be losing cash. Running ads without knowing your true numbers is a recipe for bankruptcy.
Here is the math you need to do to sleep well at night.
Step 1: Calculate Your COGS
COGS stands for Cost of Goods Sold. How much does it cost you to make and ship one unit?
Example: You sell a shirt for $50. It costs $15 to make and $5 to ship. Your COGS is $20.
Step 2: Find Your Margin
Subtract COGS from the Price.
$50 (Price) - $20 (COGS) = $30 Margin.
This means you have $30 to play with. You can spend up to $30 to get a customer. If you spend $31, you lose money.
Step 3: Calculate Break-Even ROAS
ROAS is Return on Ad Spend.
Formula: Sale Price / Margin.
$50 / $30 = 1.66.
Your Break-Even ROAS is 1.66. If your Facebook dashboard shows a ROAS of 1.5, you are losing money. If it shows 2.0, you are profitable.
Step 4: The 'Blended' ROAS
Facebook tracking isn't perfect. It misses some sales. It is important to look at your total business.
Total Revenue / Total Ad Spend.
If this number is healthy (usually above 3.0 or 4.0 for e-commerce), you are generally safe to keep spending.
Profit First
Don't chase high revenue if it comes with low profit. Focus on ads that bring in high-margin sales. Stirling helps you create ads that target your most profitable products, ensuring your bank account grows, not just your revenue graph.
