By John Readman
Over the past 25 years, I’ve seen e-commerce change in almost every way. With benefits such as improved accessibility and insight for customers, and innovation and efficiency for vendors, this evolution has been largely positive for buyers and sellers. In recent years, however, I’ve seen profitable businesses become unprofitable as they grow, and that should be a concern.
As acquisition costs rise and privacy restrictions challenge the established strategies businesses rely on, revenue growth as the sole measure of success has become a trap.
The Growing Gap Between Revenue And Profitability
Customer acquisition has always cost businesses money. In 2013, industry benchmarks were around $9 per customer. By 2022, that cost had risen 222% to $29. A 2025 Deloitte report estimated that, depending on the channel, acquisition costs across the board increased by 25% to 40%.
For every first purchase by a new customer, you could potentially be losing over $30 before considering the wider economics of that customer relationship.
While your revenue graph might show growth and customer acquisition numbers might be increasing, the hidden costs behind that growth could be masking a decline in profitability.
Rising Advertising Costs
One of the biggest drivers of increasing acquisition costs is advertising. According to a Triple Whale analysis of data from over 30,000 brands, cost per acquisition (CPA) for paid advertising increased by 8.64% in 2025. For businesses relying on a single channel to drive sales, increases like this year after year can quickly erode profitability.
Customer Loyalty
The cost of acquisition is only part of the problem. The SAP Customer Loyalty Index showed a 5% drop in customer true loyalty from 2024 to 2025. And many customers won’t return for repeat purchases, where businesses generate their strongest margins.
Privacy Changes
Changes to data privacy have perhaps had the biggest impact on the e-commerce growth model. As more users opt out of third-party tracking, the ability to optimize campaigns and target customers has been significantly reduced.
This lack of visibility has also impacted reporting and attribution, making it harder for businesses to accurately understand which activities are driving profitable growth rather than simply generating revenue.
ROAS Is No Longer Enough
The unfortunate truth is that Return on Ad Spend (ROAS) is increasingly limited as a measure of e-commerce performance. It’s a metric built around an e-commerce market that has changed dramatically. Looking at the revenue generated from acquisition spend without factoring in margin at a more granular level does not provide a complete picture. ROAS rewards revenue and revenue alone.
For example, imagine you are running two campaigns, Campaign A and Campaign B. On the surface, both appear successful, delivering five times ROAS and generating $50,000 in revenue. However, the product in Campaign A has a margin of 20%, compared with 50% for the product in Campaign B. While both campaigns generate the same revenue, Campaign B creates $25,000 in profit compared with just $10,000 from Campaign A. ROAS does not make that distinction. Profit on Ad Spend (POAS) does.
Profitability Is Moving To Product Level
The problem is not that e-commerce businesses lack data. Most retailers have access to more reporting than ever before. The problem is that the data can lead many of them to the wrong decisions.
By focusing on the profitability of individual products, businesses can avoid the revenue trap and identify where real value is being created. For years, e-commerce teams have optimized around channels, but the channel is only part of the story. The real driver of profitability is the product itself.
Some, often less glamorous, products have strong margins, attract valuable customers and encourage repeat purchases. Others generate impressive revenue but hemorrhage profit once return rates, advertising costs and other fees are taken into account.
The next shift in e-commerce performance will be moving from channel-level reporting to product-level profitability. Retailers need to understand not just what is selling, but what is creating value. This requires connecting data that has traditionally been siloed: advertising performance, product margins, customer behavior and commercial outcomes.
A new generation of e-commerce analytics platforms is helping businesses make this shift, moving beyond reporting on past performance toward predictive analytics.
AI Will Make This Shift Unavoidable
AI shopping agents will accelerate this change. For years, e-commerce success has been about clicks and conversions. But that model is changing. As AI increasingly helps consumers compare products, evaluate options and make purchasing decisions, retailers will compete in an environment where product value is an essential metric.
AI systems are designed to understand context, compare alternatives and recommend what best fits a customer’s needs. To benefit from the rise of agentic commerce, businesses will need a much deeper understanding of their own products, margins and customer value.
Successful retailers understand which products deserve attention and where profit actually comes from.
E-commerce has spent the past decade optimizing for growth. But as acquisition costs increase, privacy changes reduce visibility and AI reshapes how consumers discover products, the smartest businesses will understand exactly where their profits come from and build strategies to maximize them.
Feature image credit: Getty
By John Readman
Find John Readman on LinkedIn. Visit John’s website.
