Maximum Ad Cost per Order: How to Work It Out Before You Lose Money
Your cost per order in Ads Manager looks cheap, and the month still closes at a loss. That's because the figure is calculated over every order that came in, while you only earn on orders that get delivered. This guide connects the two numbers.
The problem: ads charge you per order, but the money comes from delivery
If 100 orders come in, not all of them will be confirmed, and not every confirmed order will be delivered. And a returned order isn't zero: it's a loss, with shipping both ways and sometimes a damaged product. So you need to work out the expected profit from each single order that comes in, and that is the most you can spend on ads to bring it in.
The formula
First, work out your profit on an order that is delivered and your loss on an order that is returned:
Then weight them by the probabilities:
- confirm_rate: the share of incoming orders that get confirmed.
- delivery_rate: the share of confirmed orders that get delivered.
- return_share: the percentage of the shipping price the shipping company charges you on a return.
- damage_rate: the share of returned products that can't be sold again.
If you spend less than this figure per order, you're making a profit; if you spend more, you're losing money no matter how many orders you get.
A worked example
These numbers are an example for illustration. Put your own numbers into the calculator:
| Item | Value |
|---|---|
| Selling price (excluding shipping) | 600 EGP |
| Shipping you charge the customer | 50 EGP |
| Product cost | 220 EGP |
| Shipping cost charged by the shipping company | 65 EGP |
| Collection fee | 1% of the amount collected |
| Packaging and other costs | 10 EGP |
| Confirmation rate | 70% |
| Delivery rate of confirmed orders | 75% |
| Returns are charged at | 100% of the shipping price, with 10% write-offs |
- Profit per delivered order = 600 + 50 − 220 − 65 − 6.5 − 10 = 348.5 EGP
- Loss per returned order = 65 + 22 + 10 = 97 EGP
- Maximum cost per order = 0.70 × (0.75 × 348.5 − 0.25 × 97) ≈ 166 EGP
So if Ads Manager says your cost per order is 120 EGP, you're safe. At 190 EGP, you're losing about 24 EGP on every order that comes in, even if the numbers look good.
The number with the biggest impact: delivery rate
In the same example, if the delivery rate drops from 75% to 60%, the maximum cost per order falls to about 119 EGP. In other words, improving confirmation and shipping gives you more room to spend on ads than any improvement to the ads themselves. See how to reduce returns.
The break-even delivery rate
Turn the formula around: if your ad cost per order is fixed, what is the lowest delivery rate at which you don't lose money?
This is a useful number to watch for every shipping company and every governorate: any area where the delivery rate is below break-even loses you money on every order.
Work it out on your real numbers
The formula is easy; the hard part is getting the right numbers: your actual confirmation rate, the delivery rate for each shipping company, and the cost of each product. In WeSell these numbers are calculated automatically from your orders, and the built-in profit calculator gives you the maximum cost per order and the break-even point over a period you choose.
FAQ
Should I calculate cost per order on incoming orders or confirmed ones?
Why do I count write-offs on returns?
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