The ProfitPilot Blog

82% of small businesses fail because of cash flow problems. Not because they weren't profitable on paper—because they ran out of money before they could scale. Your cash runway is the most critical number you're probably not tracking.

What is Cash Runway?

Cash runway is how long your business can survive with the cash you have right now, based on your current burn rate. It's measured in months or days.

Formula: Cash Runway = Current Cash Balance / Monthly Burn Rate

How to Calculate It

Step 1: Find your current cash balance (checking + savings dedicated to the business)
Step 2: Calculate your monthly burn rate (all expenses - all revenue)
Step 3: Divide cash by burn rate

Example: You have $30,000 in the bank. Your monthly expenses are $15,000 and revenue is $10,000. Your burn rate is $5,000/month. Your runway is 6 months.

How to Extend Your Runway

• Cut non-essential expenses immediately
• Negotiate better terms with suppliers
• Increase prices (even 10% helps)
• Pause ad spend on unprofitable campaigns
• Focus on high-margin products

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Most store owners celebrate when they hit a 2x ROAS. But what if your break-even ROAS is 2.5x? You're losing money on every ad dollar spent. Here's how to calculate the minimum ROAS you need to stay profitable.

What is Break-Even ROAS?

Break-even ROAS is the minimum Return on Ad Spend you need to cover all your costs. Anything below this number means you're losing money. Anything above means you're profitable.

The Formula

Break-Even ROAS = 1 / (1 - Total Costs as %)

Example: If your total costs (COGS + fees + shipping) are 60% of revenue, your break-even ROAS is 1 / (1 - 0.60) = 2.5x

Step-by-Step Calculation

1. Calculate your COGS as a % of revenue (e.g., 40%)
2. Add Shopify fees (~2-3%)
3. Add payment processing fees (~3%)
4. Add shipping costs as % of revenue
5. Add any other variable costs
6. Use the formula above

Why This Matters

If you're running Facebook ads at 2x ROAS and celebrating, but your break-even is 2.5x, you're literally burning cash. Every $100 in ad spend is costing you $20 in losses.

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Scaling is exciting. It's also dangerous. Scale too early and you'll burn through cash. Wait too long and you'll miss opportunities. Here's how to know when you're ready.

5 Signs You're Ready to Scale

1. You're consistently profitable (20%+ margins)

If your margins are razor-thin, scaling will expose every inefficiency and crush you.

2. Your unit economics work

CAC < LTV by at least 3x. If you're losing money on each customer, you can't make it up in volume.

3. You have 6+ months of cash runway

Scaling requires cash. If you don't have runway, you'll run out of money before you see returns.

4. Your operations can handle 3x volume

Can your supplier fulfill 3x more orders? Can you handle 3x more customer service? If not, don't scale yet.

5. You have winning products with proven demand

Don't scale mediocre products. Scale winners with strong repeat purchase rates.

5 Signs You're NOT Ready

• Your profit margins are under 15%
• You're still figuring out product-market fit
• Cash flow is tight (less than 3 months runway)
• Your ROAS is inconsistent month-to-month
• You don't have systems in place for operations

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You think your product costs $10, so you sell it for $30 and celebrate a 67% margin. But you're forgetting about 15 other costs that bring your real margin down to 20%. Here are the hidden costs destroying your profitability.

The Hidden Costs Most Stores Miss

1. Shipping Costs

Even with "free shipping", you're paying it. Average 10-15% of order value.

2. Returns & Refunds

Industry average is 20-30% for fashion, 5-10% for other products. You lose the product, shipping both ways, and payment fees.

3. Payment Processing Fees

Shopify Payments takes 2.9% + $0.30. That adds up fast.

4. Shopify & App Fees

Your monthly subscription plus all those apps ($5 here, $30 there). Can easily hit $300-500/month.

5. Ad Spend

Facebook, Google, TikTok ads need to be factored into your per-order costs.

6. Packaging Materials

Boxes, tape, inserts, tissue paper, thank you cards—it adds up to $2-5 per order.

7. Discounts & Promotions

That 20% off code? It comes straight out of your margin.

8. Chargebacks & Fraud

Typically 0.5-1% of revenue. Small but deadly at scale.

The Real Cost Example

What you see:

• Selling price: $50
• Product cost: $15
• Gross profit: $35 (70% margin!)

What's really happening:

• Product cost: $15
• Shipping: $6
• Packaging: $2
• Payment fees: $1.75
• Returns (20%): $10
• Ad spend (per order): $12
• Real profit: $3.25 (6.5% margin)

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Shopify gives you 100+ metrics. Google Analytics gives you 1,000+. But you only need 7 to run a profitable store. Here they are.

The Essential 7

1. Net Profit Margin

What you keep after ALL expenses. Target: 15-25%

2. Customer Acquisition Cost (CAC)

How much you spend to get one customer. Target: 1/3 of LTV

3. Customer Lifetime Value (LTV)

Total profit from one customer over their lifetime. Target: 3x CAC minimum

4. Cash Runway

How many months you can operate with current cash. Target: 6+ months

5. Break-Even ROAS

Minimum ROAS to be profitable. Know this number cold.

6. Repeat Purchase Rate

% of customers who buy again. Target: 20%+ in first 90 days

7. Average Order Value (AOV)

Average cart size. Increasing this by 10% can double profits.

Why These Matter

These 7 metrics tell you:
• If you're profitable (Net Margin)
• If you can scale profitably (CAC vs LTV)
• If you'll run out of money (Cash Runway)
• If your ads are working (Break-Even ROAS)
• If customers love your products (Repeat Rate)
• Where to focus for growth (AOV)

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"We increased your impressions by 300%!" Cool. Did that make them money? If you can't tie your work to actual profit, you'll lose clients. Here's how to show real ROI.

The Problem with Vanity Metrics

Most agencies report on:
• Impressions
• Clicks
• Engagement rate
• Followers

None of these pay bills. Clients want to know: "Did I make more money than I spent on your services?"

What to Report Instead

1. Net Profit Increase

"We increased your net profit by $47,000 this quarter"

2. ROAS (Return on Ad Spend)

"Your ads generated $5 for every $1 spent"

3. CAC Reduction

"We lowered your cost per customer from $45 to $28"

4. LTV Increase

"Average customer now generates $180 vs $120 before"

5. Cash Flow Improvement

"You now have 8 months of runway vs 3 months"

The ROI Conversation

Instead of: "We got 2 million impressions!"
Say: "Our campaigns generated $150K in profit. You paid us $10K in fees and $40K in ad spend. That's a 3x return on your total investment."

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