What Happened to First Purchase Profitability?

There was a time when acquiring an e-commerce customer was almost embarrassingly cheap.

In the early days of DTC, brands like Warby Parker, Dollar Shave Club, and Casper were rewriting the rules of retail. They were acquiring customers for as low as $10 or $15 through Facebook ads. Dirty Lemon, a beverage brand, was spending $20,000 to $30,000 per day on Facebook and Instagram and acquiring customers profitably. The math worked on the first transaction. You spent money, you made money, and you scaled.

That era is over.

Today, the average e-commerce customer acquisition cost sits between $70 and $130 depending on the category, and significantly higher in competitive verticals like electronics, fashion, and luxury. Those figures have climbed roughly 40% in just the past two years, according to multiple industry analyses. Over the past decade, the trend is even starker: SimplicityDX research documents a 222% increase in the average loss brands take on each new customer acquired. The $15 customer is a relic. And for most brands, losing money on the first order has become the norm.

This isn't a temporary blip. It's a structural shift that has fundamentally changed the unit economics of e-commerce. Understanding how we got here, and what it means for your business, is what Margin of Growth is about.

The Golden Era: 2010 to 2017

The first wave of digitally native brands had a massive advantage: they were early to a platform that was still figuring out how to monetize.

Facebook's ad platform was new, inventory was abundant, and competition was thin. Brands could target specific audiences with surgical precision at costs that seem laughable today. A click that now costs over a dollar cost a fraction of that. A customer that now requires hundreds in spend could be acquired for lunch money.

The playbook was simple: pour money into Facebook, acquire customers cheaply, and scale as fast as possible. Venture capital flooded in because the unit economics were undeniable. You could acquire a customer for $15, sell them a $100 product with 50% contribution margins, and pocket $35 in profit on day one. Marketing wasn't just an amplifier of the business. It was the business.

First purchase profitability wasn't a goal. It was the default.

The Turning Point: 2017 to 2019

Then the math started to break.

As more brands recognized Facebook's power, competition intensified. Customer acquisition costs across DTC brands increased roughly 60% from 2014 to 2019, according to SimplicityDX. Median cost-per-click for Facebook ads climbed steadily. AdStage reported average CPCs rising from around $0.31 in 2018 to $0.45 in 2019, with News Feed placements averaging in the $0.55 to $0.65 range depending on the quarter.

The brands that had been acquiring customers profitably suddenly weren't. Dirty Lemon's CEO Zak Normandin described hitting a wall: "I think it was probably the beginning of 2018 when the marketplace became really cluttered. Those costs just became unsustainable." According to Modern Retail, the company saw roughly a 3x increase in cost per action on Facebook between 2017 and 2018. By the end of that year, they stopped advertising on Facebook and Instagram altogether.

But the real disruption was still coming.

The New Reality: 2021 to Present

When Apple released iOS 14.5 in April 2021, it fundamentally broke the Facebook advertising model. Users could opt out of cross-app tracking, and most did. According to Flurry Analytics, which tracks over a billion devices, opt-in rates hovered around 25% across all apps. That means roughly three out of four users chose not to be tracked. For social media apps specifically, opt-in rates were even lower, around 22%.

Targeting became less precise. Attribution became unreliable. The algorithms that had once delivered customers with machine-like efficiency started guessing. And costs kept rising.

By 2025, the average e-commerce brand was spending $70 to $130 just in marketing costs to acquire a single customer, with fashion and luxury brands often exceeding $150. When you layer in overhead, creative production, and returns, some analyses put the fully-loaded cost north of $200. The $15 customer isn't just gone. They're almost unimaginable.

The consequences are severe. According to U.S. Bureau of Labor Statistics data, roughly half of all new businesses close by their fifth year. For e-commerce startups specifically, the picture is bleaker. Some estimates put failure rates as high as 80%. Rising customer acquisition costs are a significant driver: SimplicityDX found that brands now lose an average of $29 on every new customer acquired, up from $9 in 2013.

The Profitability Problem

Here's what this means in practice. Let's walk through the math.

Say your average order value is $120. Your cost of goods is $40. After shipping, transaction fees, pick-and-pack, and an allowance for returns, your total variable costs come to roughly $66. That leaves you with a contribution margin of $54 per order, or about 45%.

That $54 is your growth budget. It is the absolute maximum you can spend to acquire a customer without losing money on the first transaction.

Now look at the current landscape. If your new customer CAC is $90, you're not keeping $54 per customer. You're losing $36. And that's before a single dollar goes toward rent, payroll, or software. In more competitive categories like fashion, beauty, and electronics, where CAC runs $100 to $150+, the gap widens fast. Some brands are losing $75 to $100 on every first order.

Most founders don't see this clearly because they're looking at the wrong numbers. They see a "Cost Per Purchase" in their ad dashboard and assume that's what they're paying for a new customer. But platform metrics blend returning customers, double count across channels, and rely on statistical modeling to fill gaps created by privacy changes. The number that matters is your true new customer CAC: total marketing spend divided by first-time buyers, pulled from Shopify, not from Meta.

To break even, that customer needs to come back and purchase again. And again. And you need them to do it before you run out of cash waiting. This is the payback window, and for most brands it stretches months into the future. Every day inside that window is a day you're floating negative cash flow, betting on retention to eventually make the math work.

The problem is that retention is never guaranteed. Cohorts decay. Customers churn. The repeat purchase you're counting on might never arrive.

CAC Is the New Rent

Daniel Gulati, a partner at Comcast Ventures, put it bluntly: "CAC is the new rent."

The original promise of DTC was that cutting out the middleman (the retailer, the wholesaler, the physical storefront) would let brands offer better products at lower prices while keeping healthier margins. But Facebook and Google have become the new middlemen. The rent you used to pay to a landlord now goes to Meta and Google.

As Gulati explained: "For companies reliant on paid marketing, their customer acquisition cost is a lot like paying for brick-and-mortar stores in the old model, or selling wholesale. Essentially, this undermines one of the most basic precepts of the DTC movement."

When you're spending $90 to $150 to acquire a customer for a $120 product, the "direct" in direct-to-consumer starts to feel like a technicality.

What This Means for Your Business

If you're building an e-commerce brand today, you cannot operate on the assumptions that worked a decade ago. The economics have changed, and the brands that survive will be the ones that change with them.

First purchase profitability, the ability to generate positive contribution margin dollars after accounting for your acquisition cost on the very first transaction, has gone from the default to a rare achievement. Brands that can pull it off have a massive structural advantage. They don't rely on retention projections. They don't need to float cash for months waiting for payback. Every customer funds the next customer.

For everyone else, the math demands a different approach. You need to know your real contribution margin, not your gross margin, but the actual dollars left after every variable cost tied to the sale. You need to know your break-even ROAS, the minimum return your ads must generate just to cover costs, which is driven entirely by that contribution margin. You need to understand your payback window: exactly how long it takes for a customer's cumulative margin to exceed what you paid to acquire them. And you need cash reserves to survive that gap.

These aren't abstract concepts. They are the operational math that separates businesses that scale from businesses that slowly bleed out while their dashboards tell them everything is fine. Marketing is a powerful amplifier, but it amplifies whatever is underneath it. If the unit economics are healthy, marketing accelerates your success. If they're broken, it accelerates your failure.

The $15 customer isn't coming back. The question is whether your business model can survive without them.

That's what Margin of Growth is about. Not marketing theory, but the financial foundation that makes marketing work.