CPG Unit Economics

Most CPG founders can tell you their revenue. Many can tell you their gross margin. Almost none can tell you their contribution margin per unit after freight, commissions, and payment processing.

That gap is where businesses stall.

Not because the product is bad. Not because the brand is weak. Because the unit economics were never built to support scale. The math that worked at 500 units per month breaks at 5,000. The margin that looked healthy on a spreadsheet disappears when real costs land.

We have rebuilt the unit economics model for eleven product businesses in the past three years. Every time, the founder believed the math was fine. Every time, at least two of the eight numbers were wrong.

Here is the framework.

The 8 Numbers

These are the eight numbers that decide whether a CPG business scales or stalls. Most founders track three or four of them. All eight interact. Missing one changes the meaning of the others.

1. COGS (Cost of Goods Sold)

What it costs to make one unit of your product. Ingredients, packaging, co-packing labor, and the fill/pack fee. Not freight. Not storage. Not marketing. Just the product in the box.

Where it goes wrong: Founders use the COGS from their first production run, which was almost always higher per unit because the volume was lower. They never update it. Or they leave out the co-packer's setup fee, which gets amortized across the run but matters enormously on short runs.

The number to know: Pull your COGS from your last three production runs. Average them. If the number is more than 5% different from the COGS on your pricing spreadsheet, your pricing spreadsheet is lying.

2. Gross Margin

Revenue minus COGS, divided by revenue. The simplest profitability metric and the one most often quoted incorrectly.

Where it goes wrong: Founders calculate gross margin using their retail price but forget that 30-50% of their revenue comes through wholesale, Amazon, or distributor channels where the effective price is 40-60% lower. The gross margin on a 24-dollar retail product is very different from the gross margin on that same product sold to a distributor at 13.20.

The number to know: Calculate gross margin per channel, then calculate a blended gross margin weighted by each channel's share of revenue. If your blended number is below 50% for DTC-heavy brands or below 35% for wholesale-heavy brands, you have a structural problem.

3. Net Revenue

The money you actually collect after returns, discounts, chargebacks, and trade spend. Not the number at the top of the invoice. The number that hits your bank account.

Where it goes wrong: Trade spend is the silent killer. Slotting fees, promotional allowances, free fills, and retailer chargebacks can eat 15-25% of gross revenue in the retail channel. Most founders track gross revenue and call it "sales." The distance between gross revenue and net revenue is where the margin evaporates.

The number to know: Net revenue = gross revenue minus returns, discounts, chargebacks, and trade spend. If you do not know this number by channel, you do not know your real revenue.

4. Contribution Margin

Net revenue minus COGS, minus all variable costs that scale with each unit sold. This includes freight to the customer, payment processing fees, commissions, and pick-and-pack fulfillment costs.

Where it goes wrong: Contribution margin is the number that tells you whether selling one more unit makes you money or loses you money. If your contribution margin is negative, every sale costs you cash. Growth makes the problem worse, not better. Founders who skip this number and focus on gross margin are flying blind.

The number to know: Calculate contribution margin per unit by channel. If any channel has a negative contribution margin, you are paying customers to take your product. Fix it or exit the channel.

5. CAC (Customer Acquisition Cost)

The total cost to acquire one new customer. All marketing spend (ads, influencer fees, trade show costs, samples) divided by the number of new customers acquired in the same period.

Where it goes wrong: Founders divide their ad spend by total orders and call it CAC. But total orders include repeat customers, who did not cost you anything to acquire this time. Real CAC uses only new customers in the denominator. The difference can be 2-3x.

The number to know: If your CAC is higher than your contribution margin per first order, you need every new customer to come back and buy again just to break even on acquiring them. That is fine if your repeat purchase rate supports it. It is fatal if it does not.

6. LTV (Lifetime Value)

The total revenue (or better, total contribution margin) you earn from a customer over their entire relationship with your brand.

Where it goes wrong: Most LTV calculations are aspirational. They assume customers will keep buying for 3-5 years based on a small sample of loyal early adopters. In reality, CPG repeat rates for small brands range from 15% to 35%. A realistic LTV uses actual repeat purchase data, not projections.

The number to know: LTV = average order value x average number of orders per customer x contribution margin percentage. Use 12-month cohort data, not lifetime projections. If your LTV:CAC ratio is below 3:1, your acquisition engine is not sustainable.

7. Velocity

Units sold per store per week (for retail) or units sold per month (for DTC). Velocity is how retailers decide whether to keep you on the shelf. It is also the earliest signal of whether a product has real demand or was just a successful launch.

Where it goes wrong: Founders report velocity as an average across all stores. But velocity varies enormously by region, store format, and shelf placement. A product doing 3 units per week in natural grocery might do 0.5 units per week in conventional. The average hides the fact that half the stores are underperforming and dragging down the entire number.

The number to know: Calculate velocity per store, then segment by store type. If more than 30% of your stores are below 1 unit per week, you have a distribution problem, not a demand problem.

8. Landed Cost

The total cost to get one unit from the factory to the point of sale. COGS plus freight plus duties plus warehousing plus any handling fees. This is the true cost of your product, and it is almost always higher than founders expect.

Where it goes wrong: Founders forget about inbound freight (factory to warehouse), duties on imported ingredients, and the per-unit cost of warehousing. A product with a 12-dollar COGS can easily have a 15.50 landed cost. That 3.50 gap is where margin models break.

The number to know: Landed cost should be calculated door-to-door: from where the product is made to where the customer receives it. Include everything. If you do not know this number, you do not know your real margin.

The Benchmark Table

These ranges come from the businesses we have worked with directly and public CPG benchmarks. Your specific category will vary, but if you are significantly outside these ranges, it is worth investigating why.

The 5 Errors We See Every Time

Error 1. Using retail price to calculate margin on wholesale revenue. If 40% of your revenue comes through distributors at a 50% discount, your real margin is not what the DTC spreadsheet says. Weight the margin by channel.

Error 2. Ignoring trade spend. Slotting fees, free fills, promotional discounts, and chargebacks are real costs. They come out of your margin. If you do not track them as a line item, your net revenue number is fiction.

Error 3. Counting all orders as new customer acquisitions. Repeat customers do not cost you CAC. Divide marketing spend by new customers only. Your real CAC is higher than you think.

Error 4. Projecting LTV from early adopters. Your first 500 customers are fans. They came because they believed in you. Customer 5,000 came from an Instagram ad. Their repeat rate will be lower. Use cohort data, not averages.

Error 5. Forgetting inbound freight in landed cost. The cost to ship raw materials to your co-packer and finished goods to your warehouse is a real cost. It belongs in your landed cost calculation. Leaving it out makes your margin look 3-5 points healthier than it actually is.

What to Do This Week

1. Pull the 8 numbers. Use your actual data from the last 90 days. Not projections. Not the numbers from your pitch deck. Actual numbers from your accounting system, your sales data, and your freight invoices.

2. Calculate by channel. If you sell DTC and wholesale, calculate every number separately for each channel. The blended number hides the channel that is bleeding.

3. Compare to the benchmark table. Flag anything in the danger zone. Those are the numbers that will break first at scale.

4. Fix the most dangerous number first. Not the easiest. The most dangerous. If your contribution margin is negative in any channel, that is your fire. Everything else can wait.

5. Book an Operational Readiness Assessment. If more than two of your numbers are in the danger zone, you have a structural problem that will not be solved by tweaking one input. We build the unit economics model from scratch and show you exactly where the math breaks. Book a call here.

The 8 numbers are not a reporting exercise. They are the operating system of your business. If you do not know them by heart, you are making decisions in the dark.

Ops Intel

A few signals we are tracking this week:

Drewry's World Container Index is up 12% month-over-month. If you import ingredients or packaging, your landed cost number is about to change. Check your freight contracts now, not after the invoice arrives.

P&G's tariff exposure is estimated at 1.5 billion annually under current and proposed tariff schedules. They are responding by accelerating supply chain localization. If the largest CPG company on earth is reshoring to manage landed cost, smaller brands importing raw materials need to model the same scenarios.

Meta ad prices increased 10% year-over-year in Q1 2026 across CPG verticals. Your CAC is going up whether you like it or not. The brands that survive rising ad costs are the ones with high enough LTV to absorb the increase. If your LTV:CAC ratio is already thin, this trend will break it.

Cocoa futures remain above 8,000 per metric ton, up from 2,500 two years ago. Any product with chocolate, cocoa powder, or cocoa butter in the formulation has a COGS problem that is not going away. If you have not run the Ingredient Swap Protocol on your cocoa-containing products, start this week.

Church & Dwight (makers of OxiClean, Arm & Hammer) reported that they are raising prices on 60% of their portfolio to offset input cost increases. When a company with that much buying power is raising prices, smaller brands without scale pricing advantages need to be even more rigorous about their cost sheet. The margin is not coming from market power. It has to come from operational discipline.