How marketing expenses affect business profitability

Marketing affects profitability on three tracks at the same time:

1. Revenue (increase in customers and revenue), 2. Cost of revenue (discounts/bonuses/cost of channels), 3. Cash timing (payback rate, return on capital).

It is the balance of these three factors that determines whether turnover growth will turn into profit - or "growth for growth."

1) Basic formulas and language of indicators

CAC (Customer Acquisition Cost) = Acquisition cost/number of new paying customers.

LTV (Lifetime Value) ≈ ARPPU × gross margin × life expectancy.

ROMI = (Incremental Gross Margin − Marketing Spend )/Marketing Spend.

ROAS (revenue) = Revenue attributed to campaign/Campaign spend - good for e-com but not margin deceptive.

Payback (months) = CAC/margin income per month.

Unit profit = LTV − CAC (must be> 0 and grow).

Blended CAC/CAC by channel - business average vs. section by source.

Rule: strategically target - LTV/CAC ≥ 3 ×, tactical tolerance threshold - ≥ 2 × (depends on cache turnover and cost of capital).

2) Where marketing "sits" in P&L

Revenue: Campaigns drive new turnover and repeat purchases/deposits.

Write-offs to revenue: coupons/bonuses, partner revshers - reduce gross margin.

OPEX (marketing): media, affiliates (CPA/RevShare), creatives, tools, team.

Working capital: long payback = cash gap, even with paper profitability.

3) How expenses turn into profit: the mechanism

1. Channel quality → low CAC and relevant clients.

2. Onboarding and frictionless payments → higher conversion and frequency, lower returns.

3. LTV → retention is growing multiplicatively (frequency × average check × life).

4. Promo as an investment → bonuses/discounts increase iLTV, not just D0 conversion.

5. Fast payouts/delivery and transparent rules → trust, referrals and organics.

4) Sensitivities: small shifts - big effect

CAC − 10% at constant LTV ⇒ Unit profit grows linearly.

Retention + 10% (cohort life) ⇒ LTV ↑ by 10-20% due to frequency/ARPPU.

Approval Rate (payments) + 5 pp ⇒ + 3-8% to revenue with the same marketing.

Bonus Cost − 3 p.p. (with the same deduction) ⇒ double-digit EBITDA growth.

Conclusion: the fastest payback for marketing is payment improvements, retention and hygiene promotions.

5) How to measure the effect correctly: increment, not "everything"

Holdout/geo-split: part of the audience does not see the campaign → we consider iLTV and increment to income, and not "the entire income of the cohort."

MTA/MMM: advanced attribution, but always check with the holdout benchmark.

CPA/ROAS ladders: hard channel and geo tolerance thresholds.

Cohorts by the date of the first transaction, and not by click - this is more honest about retension and margin.

6) Marketing as margin driver: 7 levers

1. Payment funnel optimization (local methods, provider cascades, p95 output/delivery): reduces CAC (fewer lost leads) and raises LTV.

2. Anti-abuse/clean promos: non-stocking promotions, cap at a rate/discount, exception lists - less margin "leaks."

3. Personalization: triggers for the second payment/purchase, win-back on risk signals.

4. Content/product seasons: calendar of releases and events instead of constant discounts.

5. KPI affiliates: a hybrid of CPA + RevShare with "sanctions" for low retention.

6. Creative/landing: A/B on first-mile (speed/UX/clear rules) is the cheapest lift.

7. Transparency (conditions, honesty of mechanics) → less chargeback/complaints, access to "white" channels, below the media set.

7) Mini example: how profitability is changing

Before optimization (month):

New paying: 10,000; CAC = $45 → marketing $450k.
LTV (12 months) = $90; gross margin 40% → marginal LTV = $36.
Unit profit = $36 − $45 = − $9 (unprofitable), Payback> 12 months

After 90 days of work:

CAC → $40 (cut of expensive channels, aff-KPI).
Retention + 12% (missions/product/payouts) ⇒ LTV $100 → margin $40.
Approval Rate + 4 pp ⇒ + 5% to income (included in LTV).
Unit profit = $40 − $40 = $0 (at zero) → another − 2 pp Bonus Cost and + 1 pp conversions make $ + 3-5 profit per customer.
ROMI campaigns from the "red zone" goes to 10-25%.

8) What to include in the "marketing economy" besides media

Discounts/bonuses (as revenue reduction or separate line to GGR).

Cost of payments/logistics for promotional orders/deposits.

Cost of abuse/fraud (chargebacks, multi-accounts).

Support and CCM/verification as part of cost-to-serve marketing cohorts.

9) System of goals: from "spending" to "return on capital"

KPI tree:

Finance: EBITDA/NGR%, FCF, Payback.
Growth: LTV/CAC, Blended CAC, share of repeat purchases.
Funnel quality: Approval Rate, p95 Time-to-Payout/Delivery, Chargeback/Refund.
Bonuses: Bonus Cost%, Incremental LTV/Bonus ROI.
Borders: the channel is allowed to scale only with LTV/CAC ≥ 2 × and Payback ≤ 6-9 months (substitute your cache restrictions).

10) 90-day profitability improvement plan

Weeks 1-2 - Diagnostics

Cohort reports D1/D7/D30, hazard-models of outflow.

Channel mapping: CAC, LTV, Payback, share of fraud/returns.

Audit of bonuses/discounts: stacking, cap, exception lists.

Weeks 3-6 - Quick Wins

Redrawing media mix: stop channels with LTV/CAC <1. 5 ×, increase in the proportion of organics/referrals.

Payments: additional methods, cascades, SLAs for payments/delivery.

Bonuses: "unlock" for the target action, cap, transparent rules on one screen.

Weeks 7-12 - System

Affiliates for hybrid CPA + RevShare with hold-KPI.

CDP/CRM scenarios: second check, win-back, VIP fast-lane.

Kanban of experiments: 2-3 A/B per week (landing pages, creative, offer).

Dashboard ROMI/Payback, alerts by fall Approval/rise Refund.

11) Frequent mistakes and how to avoid them

Reliance on non-margin ROAS → profit on paper. Count ROMI and unit-profit.

Gluing organics and paid → overestimated effect. Keep holdout/brand-lift.

Pour traffic in case of bad payments (Approval <85%, p95 output/delivery> 24 h). First - hygiene.

Promo without anti-abuse → leaks> profit. Enter non-stocking stocks and device/payment binding.

No transparency of offers → complaints/chargeback → CAC growth.

The race for GMV instead of LTV/CAC → to inflate turnover without profitability.

12) ROMI monthly report template (minimum)

Spend: by channel/geo.

New payers/CAC: by channel.

Revenue & Gross Margin: D0, D30, D60, D90.

LTV/CAC & Payback: by cohort.

Bonus Cost %, Refund/Chargeback %, Approval Rate, p95 Time-to-Payout/Delivery.

Solutions: scale/stop/experiment for each channel.

Marketing spending only improves profitability when coupled with clean funnel (payments/frictionless delivery), promo discipline and retention management. Count incremental profits, keep LTV/CAC ≥ 2-3 ×, speed up Payback, remove bonus and payment holes - and marketing from cost becomes a predictable engine of EBITDA and free cash flow.