Break-even ROAS: how much your ads need to bring back
ROAS, return on ad spend, is the revenue your ads bring in divided by what they cost. Spend $500, get $1,500 of orders: 3x. Ad platforms show it on every campaign, and “is 3x good?” is one of the most asked questions in e-commerce.
It depends entirely on your margin. A 3x ROAS is a good result for one store and a slow leak for another.
Why revenue is the wrong thing to compare
When an ad brings in a $60 order, you do not get to keep $60. The product, the shipping, the packaging and the payment fee all come out of it first. What is left is the gross profit, and that is the only money that can pay for the ad.
So the real question is not “did the ad bring in more revenue than it cost?” but “did it bring in more gross profit than it cost?”
The formula
If your gross margin before ads is 40%, each dollar of revenue leaves 40 cents to pay for advertising. To cover one dollar of ad spend, you need $1 ÷ 0.40 = $2.50 of revenue.
break-even ROAS = 1 ÷ gross margin
| Gross margin before ads | Break-even ROAS |
|---|---|
| 20% | 5.0x |
| 25% | 4.0x |
| 30% | 3.33x |
| 40% | 2.5x |
| 50% | 2.0x |
| 60% | 1.67x |
| 70% | 1.43x |
Read it as: below this number, the ads lose money; above it, they make some.
The same ROAS, two different stores
Both stores spend $1,000 and get $3,000 of sales, a 3x ROAS.
| Store A | Store B | |
|---|---|---|
| Gross margin | 50% | 25% |
| Gross profit | $1,500 | $750 |
| Ad spend | $1,000 | $1,000 |
| Result | +$500 | −$250 |
Store A is comfortably profitable. Store B needs 4x just to stand still, so its “good” 3x campaign is costing it $250.
Finding your gross margin
Gross margin before ads is:
(price − product cost − shipping you pay − packaging − payment and platform fees) ÷ price
Use the same figure for the products the ads are selling. If a campaign mostly sells your lowest-margin product, the store’s average margin will flatter it. The profit margin calculator works this out if you put every cost except ads in.
From break-even to a target
Break-even means the ads paid for themselves and nothing more. You want something left. Decide what share of revenue you want as profit after ads, then:
target ROAS = 1 ÷ (gross margin − profit share you want)
With a 40% gross margin and a goal of keeping 10% of revenue as profit:
target ROAS = 1 ÷ (0.40 − 0.10) = 3.33x
If you think in dollars per order rather than percentages, the same idea is a target CPA, the most you will pay to get one sale. The target CPA calculator gives you both numbers for your order value.
When it is fine to run below break-even
There is one good reason: customers who come back. If a new customer buys three times in a year, a first order that loses $3 can still be the start of a profitable customer. That is a decision to make with numbers, not hope:
- Find your repeat rate in the store’s reports. Of customers who bought once, how many bought again?
- Work out what a new customer costs you with the customer acquisition cost calculator, and how many orders it takes to earn it back.
- If most customers never reach that number of orders, the campaign is losing money, whatever the long-term story says.
Things that make ROAS look better than it is
- Attribution. Ad platforms count sales they touched, even if the customer would have bought anyway. Two platforms can both claim the same order. Your store’s own reports are the safer number.
- Short windows. A few days of data swing wildly. Judge on a week or more of spend.
- Discounted sales. If the ad pushes a discount code, the margin on those orders is lower than your normal margin. Use the discounted margin to work out break-even for that campaign.
The ROAS calculator takes spend, revenue and margin and tells you how far above or below break-even a campaign is, in dollars.