Here's Exactly Why Revenue is a Vanity Metric

Revenue, we found, was merely a vanity metric.

It's certainly fun to boast about, though.

Beginning to focus on aspects like contribution margin and letting those drive everything we do was the most significant metric focus change we made.

Understanding these vanity metrics took time.

For example, you might achieve a nice ROAS, but if you're selling a product with a product gross margin 15 points lower than every product on your site, or, the returns % on that SKU is 5x higher, or because it's a bulkier product, the shipping cost is 3x the norm, it might look like ROAS is increasing or you're driving tons of conversions.

However, the dollars flowing through your P&L are substantially reduced.

At the end of the month or quarter, you might think you've crushed it.

But then you realize you've generated no cash from it.

Then as we started selling in multiple channels, we needed ways to evaluate where we should allocate a marginal dollar and unit of inventory in the most accretive way.

Therefore, we could the best way to evaluate every sales channel performance on an apples-to-apples basis was by locking in contribution margin and contribution profit dollar generation on a sales channel basis.

For us, this change was pivotal, especially getting to a place where we got daily contribution dollars and margin.

Receiving a finance report at month's end is less actionable than needing daily feedback for decisions on budget allocation, channel tactics, and creative choices.

Short-term contribution gains are not the thing you're looking for, but, rather, focusing on long-term, sustainable increases in contribution dollars is crucial.

This shift fundamentally altered our approach and how we set goals for, and compensated, our team.

What is contribution?

It fundamentally involves accounting for your revenue, minus all costs tied to what you sell, including marketing costs, product COGs, shipping costs, credit card fees, returns, CX costs.

Fixed costs are not included.


What you pay for rent or your employees, isn't going to change if you do 1m this month of 10m this month.

But the keys that are often overlooked are:

You have to by dynamic and incorporate your latest product costing.

You have to make sure you've incorporated product costs on all new products (we've missed this before), and shipping costs, returns estimates and CX ticket costs have to be tied to the actual SKU + order level to be useful.

Of course, this is once you reach a certain level of sophistication, but the daily discipline of tracking all variable costs is essential at any stage.

In sum, it's about how each marketing activity brings the marketing team closer to the bottom line, therefore empowering them to have more ownership of the P&L.

More P&L ownership by more people in the org is essential for long term success because it drives the owner mentality in a larger percentage of the team.

With a team full of owners, only good things can happen