When evaluating your product's performance, you may notice that the first purchase profit can differ from the product margin. This is due to the distinction between customer-based first purchase profit and product breakeven Advertising Cost of Sale (ACoS). In this article, we'll explain these differences and the factors that can impact these calculations.
Calculating First Purchase Profit
To calculate the first purchase profit, divide the Lifetime Value (LTV) by the Average Selling Price (ASP). Here's how we calculate both:
LTV = (Total sales from new-to-brand customers x %margin) / Number of new-to-brand customers
ASP = Total sales from new-to-brand customers / Units shipped to new-to-brand customers
Factors Affecting Deviations from Provided Margins
Differences between the first purchase profit and the margins you provide us can occur due to:
Bundled ASINs on the first purchase: When a customer purchases two different ASINs together during their first purchase, the average selling price can be affected.
Discounts in ASP calculations: When calculating the ASP, we take into account all discounts applied to the sales.
Example of Deviation in First Purchase Profit
In one instance, we found that an ASIN was bought along with several other ASINs. Although not all of these instances were first-time purchases, the frequency could have been high enough to impact the breakeven ACoS.