Choose the revenue starting point
Use a consistent basis for taxes, discounts, shipping and refunds. If you start with gross orders, show how those amounts become the revenue used in the model. If you already start with refund-adjusted revenue, do not subtract refunded revenue again.
Document whether the numbers are realized, estimated or a mixture. A model with unresolved delivery or return outcomes should display that limitation rather than resemble a completed profit statement.
Worked example: trace the deductions
Illustrative example: the business begins with $1,000 revenue under its stated basis and subtracts $50 of refunds. It then records the costs below. The example excludes fixed overhead, financing and other unlisted expenses.
| Step | Amount subtracted | Remaining amount |
|---|---|---|
| Starting revenue | — | $1,000 |
| Refunds | $50 | $950 |
| Product cost on stated basis | $350 | $600 |
| Fulfillment and shipping | $80 | $520 |
| Payment fees | $30 | $490 |
| Other variable costs | $20 | $470 |
| Advertising | $200 | $270 |
The $470 is contribution before advertising under this model. The $270 is contribution after advertising, not the business's final profit. Recovered inventory and return-related costs need their own consistent treatment.
Make the waterfall a decision tool
Ask which cost changes when the team changes a price, product mix or campaign. A discount can reduce contribution even if orders rise. A new region can add delivery costs absent from the historical average.
Segment when the difference matters. A store-wide waterfall can conceal a product with excellent economics and another that cannot support acquisition. Keep the definitions identical across the segment views.
Reconcile and review
Connect the rows to business records and assign an owner to unresolved estimates. Explain timing differences rather than forcing an advertising report to equal the ledger. Review the model after returns and collections mature.
Build the waterfall for one actual cohort, with the source and definition beside each row. Then use the break-even ROAS calculation to convert the pre-ad contribution into a stated advertising limit.
Ayoub Mouhachtt
Growth & performance marketing. Explore my working background.
An AI-assisted educational guide commissioned for Ayoub’s Growth Notebook. Worked examples are illustrative; they are separate from the portfolio’s client evidence. How these guides are prepared.