Break-even ROAS explained with examples

What this guide helps you decide

Companion: turn a variable-cost margin into a break-even worksheet.

Start with the primary guide for the shared definitions; use this page for the narrower task below.

• Record revenue, goods, fees, fulfilment and expected returns
• Divide contribution before ads by revenue
• Use 1 divided by contribution-margin fraction; overheads remain separate

The idea in one sentence

If you know how much of each order you keep after direct costs, you know the most you can spend on advertising per order without losing money. Break-even ROAS expresses that limit as a ratio of revenue to ad spend, so it can be compared directly with the ROAS your ad platform reports.

The formula

Break-even ROAS = order value divided by contribution per order before advertising

Contribution per order is the order value minus product cost, shipping you pay, packaging, payment processing fees and any other cost that scales with the order. An equivalent way to say it is that break-even ROAS equals 1 divided by contribution margin, where margin is contribution as a share of order value. A 40 per cent margin gives 1 divided by 0.4, which is 2.5.

Worked example one: a simple case

An order is 60 pounds. Product cost is 20 pounds, shipping is 6, packaging is 1 and payment fees are 1.74. Direct costs total 28.74 pounds, leaving contribution of 31.26. Break-even ROAS is 60 divided by 31.26, about 1.92. If the platform reports ROAS above 1.92 for first orders, those orders cover their costs and ads. Below that, they do not.

Worked example two: with returns

Now add a 12 per cent return rate, where a returned order refunds the sale and you lose shipping both ways, but recover the product. To keep it simple, assume that on average each order loses 12 per cent of its revenue and 3 pounds of extra handling is spread across all orders. Net revenue per order becomes 52.80, since 60 times 0.88 is 52.80. Costs also fall slightly because returned goods are not consumed, but your shipping and fees are mostly sunk. A prudent calculation might give contribution of around 24 pounds. Break-even ROAS is then 60 divided by 24, which is 2.5.

The difference between 1.92 and 2.5 is large. A founder who ignored returns would have celebrated a ROAS of 2.1 that was, in fact, losing money. The exact treatment of returns depends on your business, so use your own history, not these invented numbers.

Worked example three: a discounted order

A 20 per cent discount does two things at once. It lowers the order value, and it leaves costs unchanged. If the 60 pound order becomes 48 pounds while costs remain 28.74, contribution drops to 19.26 and break-even ROAS rises to about 2.49. Promotions can therefore push a campaign from profitable to unprofitable without anything changing in the ad. When you run discounts, recalculate.

Break-even ROAS and maximum CPA

Break-even ROAS and maximum cost per acquisition are two views of the same limit. The most you can pay for a customer without losing money on a first order equals contribution before advertising. In the first example, that is 31.26 pounds. The max CPA calculator gives this figure, and the CPA versus contribution margin guide discusses it more. If your reported CPA is under the maximum, you are above break-even ROAS.

Adding the profit you want

Break-even is a floor. You probably want a margin on top, because overheads, tools and your own time need to be paid for. To find a target ROAS, decide how much profit per order you want after advertising. If you want 5 pounds on the first example, the allowable ad cost per order falls from 31.26 to 26.26. Target ROAS is 60 divided by 26.26, about 2.28. Higher required profit means a higher target ROAS.

The profit after ad spend calculator lets you test several scenarios. Try different order values and costs to see how sensitive the result is.

First order versus lifetime

Many stores accept a break-even or slightly negative first order because customers buy again. This can be sensible, but it needs honest numbers. Estimate repeat purchase rate and the contribution from later orders using your own data, and be cautious about rosy assumptions. The LTV to CAC ratio guide explains how to do this. Until you have real repeat data, use first-order break-even as your guide, because it relies on facts you hold today.

Choosing the right inputs

Order value

Use average order value for the segment you are advertising. If a campaign sells a single low-priced product, using the store-wide average inflates revenue per order.

Product cost

Use landed cost, including freight and duties where relevant, not only the supplier price.

Shipping and fees

Include what you pay, not what you charge. If customers pay for shipping, count that as revenue and the carrier bill as a cost.

Returns and refunds

Use your historic rate for the product category. If you have no history, use a cautious estimate and update it as data arrives.

Taxes

Be consistent. Many stores calculate on figures excluding sales tax. Whichever you choose, apply it to both revenue and the ROAS reported, because platforms may report revenue including or excluding tax depending on your setup. Check how your account is configured.

Common mistakes

• Using revenue margin before shipping and fees, which produces a break-even that is too low.
• Forgetting that platform ROAS is attributed and may overstate or understate what your store records.
• Using one break-even figure for products with very different margins.
• Ignoring that discounts change the maths.
• Treating break-even as a goal instead of a floor.

Product-level and campaign-level targets

If your catalogue has varied margins, calculate break-even per product or per category and set campaign targets accordingly. A campaign promoting a 70 per cent margin product can run at a lower ROAS than one promoting a 30 per cent margin item. Mixed campaigns blur this, so if you can, separate them or use a weighted average based on actual sales mix. Read what is a good ROAS for how to set practical targets and what is ROAS for the basics.

Scope and attribution cautions

All figures here are invented to illustrate the method. The platform's reported revenue depends on its attribution method, and your break-even depends on your own costs. A campaign above break-even on platform numbers may still disappoint in store revenue if the platform over-credits. Compare with store totals through MER versus ROAS, and avoid conclusions based on a handful of orders.

A cleaner returns example

The second example above is deliberately rough, so here is a tidier way to handle returns. Suppose 10 per cent of orders are fully refunded, and on those orders you lose the shipping cost and the payment fee but recover the product into stock. For an order of 60 pounds with product cost 20, shipping 6 and fees 1.74, a refunded order loses 7.74 pounds in sunk costs and the 60 pounds of revenue, and recovers the product cost. Averaged over all orders, the expected contribution per order is 0.9 times 31.26, which is 28.13, minus 0.1 times 7.74, which is 0.77. Expected contribution is therefore about 27.36 pounds, and break-even ROAS is 60 divided by 27.36, about 2.19.

That figure sits between the 1.92 of the simple case and the cruder 2.5 above. The right number depends on whether returned goods can be resold and what your processor refunds. The principle is what matters: put returns into contribution rather than ignoring them.

Building a break-even table for your catalogue

If you sell more than a few products, a one-line calculation is not enough. Make a table with one row per product or category and columns for price, product cost, shipping, fees, expected returns and contribution. Add two derived columns: break-even ROAS and maximum CPA. Sort by break-even ROAS. Products at the top need strong returns from ads and may not be good candidates for paid acquisition until margins improve, while those at the bottom can tolerate more expensive traffic. Review the table whenever supplier prices, shipping rates or discount habits change. A table like this also shows where a small improvement, such as a bundle that lifts order value, shifts the target meaningfully. Use the calculator on this page for each row, and keep the sheet with your testing log so that creative decisions always sit beside the numbers that justify them.

Quick sanity checks on your result

Once you have a break-even figure, test it against common sense. If it comes out below 1.2, check that you have included shipping, fees and returns, because very few physical products leave nearly all of the order value as contribution. If it comes out above 5, ask whether the product is viable for paid acquisition at current prices, or whether a bundle, a higher price or a cheaper supplier would change the picture. Compare it with the ROAS your best campaigns have actually achieved: if you have never come close, the gap is information, not a failure of the ads. Finally, ask someone who handles your accounts to look over the inputs, since a single missed cost can shift the target noticeably.

Pre-ad variable-cost worksheet

Illustrative worked example, not a measured customer result. Replace assumptions with checked facts.

Common questions

What is the break-even ROAS formula?

Order value divided by contribution per order before advertising. Equivalently, 1 divided by contribution margin as a decimal.

Is break-even ROAS the same as a good ROAS?

No. It is the floor at which you stop losing money on first orders. A good ROAS is above it by enough to give you the profit you want.

Should I include returns?

Yes. Ignoring them makes your break-even too low and can hide losses.

Can I run below break-even ROAS?

Only deliberately, if repeat purchases justify it and you have evidence. Otherwise each sale loses money.

Does break-even ROAS change over time?

Yes. Costs, discounts, shipping and returns change it, so recalculate regularly.

How is it different from ROI?

Break-even ROAS is a revenue-to-ad-spend threshold. ROI compares profit with total investment.