Finance — terms for margin, profit, and cash

Every commercial number from the ad account, your Messenger chats, or the warehouse ultimately ends up here, in business finance — or, because of a financial breakdown, never even reaches this point at all.

Each term gathered in this category serves one fundamental question: what does the business actually keep — once you account for cost of goods, margin, operating expenses, and the time factor? A founder who doesn't count these financial metrics daily and systematically is reading their own emotional mood and the random balance sitting in their bank account, instead of real business accounting.

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Short operational terms

Net Profit — the cash a company keeps in hand after every single business expense is subtracted: from revenue you deduct COGS, operating costs, marketing, salaries, rent, and taxes. This is the one number that never "lies" to a founder — and that's exactly why, in Georgian small and medium businesses, it's the figure least often counted correctly, because operating or marketing expenses are frequently recorded incompletely.

Markup vs Margin — Markup is calculated from the product's cost and shows "how much we added" to the purchase price; Margin is calculated from the final selling price and shows "what percentage share the business keeps" of revenue. A classic financial trap is confusing the two. For example: if you sell a ₾50 item for ₾100, your Markup is 100%, but the real Gross Margin is only 50%. Mixing these two up when budgeting for ads often leads to setting loss-making discounts.

Fixed / Variable Cost — a fixed cost is completely independent of current sales volume — the business has it every month regardless (warehouse/office rent, fixed administrative salaries, software licenses). A variable cost follows directly with every new unit sold (product cost, courier delivery service, the specific Meta Ads spend, the per-order operator bonus). A plan to scale the business, or to optimize in a crisis, physically cannot be built without a strict separation of these two cost types.

Contribution Margin — the cash balance a company keeps from one specific sale after subtracting all the accompanying variable costs (selling price − variable costs per unit). This amount goes toward covering the company's global fixed costs. This metric is the foundation for calculating Break-even ROAS: it defines the real "advertising room" the marketing team must fit within when acquiring a new customer, so the business doesn't run at a loss.

Break-even Point — the critical sales volume (in units or total revenue) at which the company's total profit exactly equals its total costs — i.e., the business runs "at zero" (total fixed costs ÷ Contribution Margin per unit). Knowing this figure precisely, right at the start of each calendar month, clearly tells the founder the minimum operating sales volume the team must hit before the company climbs out of the "debt" to its own costs and starts generating net profit.

LTV (Customer Lifetime Value) — the total net profit one unique customer leaves with the company over the entire calendar period of their commercial relationship. In businesses with a high repeat-purchase rate (for example: personal care, food products, the kids' line), this metric completely changes the marketing strategy. The founder realizes they can spend more on the first acquisition than the first order's margin, because the company sees real profit on the customer's second, third, and fourth return.

CAC (Customer Acquisition Cost) — the real, full price of acquiring one entirely new customer. It includes not only the specific ad budget but also the costs accompanying the entire operational sales process (tools, bonuses), divided by the number of new customers acquired. Unlike the ad account's CPA, which measures a simple digital action (e.g., a button click or a message), CAC is tied to a real, paying customer. For a repeat buyer, the business pays this price only once.

LTV:CAC Ratio — the direct financial ratio of these two crucial metrics. It shows the real economic value the business gets for every ₾1 invested in a new customer, across their full cycle of working with the company. For a healthy, scalable model this ratio should usually be at least 3:1. However, calculating this ratio only makes sense if both components' operational data hygiene is maintained at the highest level.

Payback Period — the precise stretch of time (usually counted in months) a new customer needs to fully repay, through their Contribution Margin, the initial cost spent to acquire them (CAC). When managing operational cash flow, this metric is often far more critical than long-term LTV. A customer with an enormous LTV who repays their CAC to the business only after 12 months will create an acute cash crunch in the company during a rapid scaling phase.

Working Capital — the financial resources physically engaged and working liquidly in the business's daily operating cycle: inventory (warehouse) + receivables (debtors) − current payables (creditors/suppliers). The biggest mistake founders make when scaling on the Georgian market is forgetting that aggressive operational growth, in its first phase, doesn't generate working capital — quite the opposite, it brutally "eats" it (to pre-purchase inventory and finance logistics). Only after a correctly managed cycle completes does it start returning that capital.

EBITDA — the company's operating profit before subtracting loan interest, profit tax, depreciation of fixed assets, and amortization of intangible assets. This metric is the best tool for comparing the pure operating efficiency of different companies with one another (for example, when talking to potential investors or banks). However, EBITDA absolutely fails to reflect the company's operational cash flow — a "perfect EBITDA" on paper and a completely empty bank account due to excess inventory purchases are fully compatible events.

Markdown (planned price reduction) — a strategically pre-calculated reduction of a product's initial selling price to physically clear the warehouse and free up capital. This is the main operational tool for managing and liquidating dead stock. Markdown price tiers and timing should be planned right at the product's initial purchase stage (we should know in advance over what timeframe and by what percentage we'll mark down if the goods don't sell). This approach turns markdowns from a panicked, loss-making measure into a natural part of a healthy operating cycle.

Price Elasticity — a metric that defines how strongly market demand (sales) volume changes in response to your changing a product's price. On an elastic product, even a small price increase instantly kills the sales count; on an inelastic product, a moderate price increase barely changes sales volume, yet quietly and dramatically raises the business's clean margin. The only way to understand this parameter is careful, small operational tests — not the founder's personal, intuitive gut feeling. Often, the simplest and entirely free profit reserve lies precisely in adjusting a product's price.

Blended ROAS / MER — the company's total commercial revenue divided by absolutely all marketing and advertising spend, across every digital channel combined (total revenue ÷ total ad spend: Meta + Google + Influencers). This metric perfectly sidesteps the Meta ad account's attribution technical falsehoods and broken measurement chains. In return, however, Blended ROAS tells us nothing about which specific channel works effectively and which burns budget to no effect. It's a measure of the business's strategic health, not a tool for daily ad optimization.

P&L (Profit & Loss) — a fundamental management document that summarizes the full business picture for a specific calendar period (month, quarter, year): total commercial revenue is written at the very top (Top Line), in the middle every type of operating, marketing, or fixed cost is subtracted line by line, and on the very last line (Bottom Line) the real net profit or loss remains. In Georgian small and medium businesses, a managerial P&L is often either not produced at all, or perceived only as a dry document the accountant submits to the tax authority (RS.GE). Producing a monthly, even the simplest managerial P&L is the primary financial discipline without which a founder measures the company's profitability only by the current balance in the bank account — which is almost always an entirely different and misleading figure.

Cash Conversion Cycle — the precise number of days that physically pass from the moment a business actually pays a foreign or local supplier for goods, to the moment it receives the cash back into its account from selling that product to the final Georgian customer. The operational chain has four phases: pay the supplier → place goods in the warehouse → sell and deliver → real collection of the money. The longer this cycle is in days, the more additional working capital the founder must put into the business just to maintain the same operational turnover. Shortening this cycle's days — by keeping fast-moving SKUs in the warehouse, quickly collecting COD amounts from courier companies, or securing deferred payment with the supplier — generates far more free, liquid cash in the business than an artificial increase in sales volume.

Opportunity Cost — one of the most important metrics in economic theory and practice: the real value of the best alternative financial benefit or profit a founder consciously or unconsciously gives up when they put the company's limited cash resource or the team's time into one specific decision. For example: ₾50,000 frozen motionless in the warehouse for 6 months "is just sitting there and not spoiling" — in reality it harms the business daily, because it loses the clean margin that this money would have brought over those same 6 months by turning several times in a fast-moving top product or by scaling working Meta Ads campaigns. Opportunity cost is never written as a separate line in any accounting report — which is exactly why it's the founder's bitterest and most unnoticed loss.

Runway (financial runway in time) — the stretch of time (usually counted in months) over which the business can physically continue operating and cover all current fixed costs with its existing cash reserve, if the company's revenue stopped entirely tomorrow or dropped sharply due to a market crisis. The operational formula is simple: Runway (in months) = the company's available liquid cash ÷ monthly fixed operating cost (Burn Rate). This figure directly determines how aggressive a marketing and pricing experiment the company has the managerial right to run at the current moment. Doubling ad budgets on a 2-month Runway is a blind bet, not a strategy; on an 8-month financial reserve, the same move is a fully considered, healthy business risk. Without knowing the Runway precisely, every scaling decision is made blind.

Related methodological diagnoses

If your company's financial statements are profitable on paper, yet managing real cash flow runs into serious operational problems every month, read CoreFlow's practical analyses:

ROAS is good, but profit is missing · Before you scale ads — 7 checks

Reviewed by CoreFlow · Based on operational experience in Meta Ads, Messenger Sales, E-commerce, and retail growth in Georgia · Last reviewed: 2026-06-20

All terms in this category

• AOV
• Break-even ROAS
• Cash Flow
• COGS
• Contribution Margin
• Gross Margin
• LTV
• Payback Period
• Unit Economics