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Break-even ROAS: the number that tells you if your ads make money
Ad platforms report ROAS, return on ad spend, front and centre, and a big number feels like success. But ROAS on its own says nothing about profit. A campaign with a ROAS of 3 can be making good money for one shop and quietly losing it for another. The number that tells them apart is the break-even ROAS.
What ROAS measures
ROAS is revenue from ads divided by what the ads cost:
ROAS = revenue ÷ ad spend
Spend $1000 on ads, get $3000 in sales, and the ROAS is 3, sometimes written as 300% or 3:1.
The catch is that revenue is not profit. Out of that $3000 come the cost of the goods, shipping, payment fees and everything else it takes to fulfil the orders. The ads have to be paid for out of what is left, not out of the revenue.
Break-even ROAS
The break-even ROAS is the ROAS at which the profit from the sales exactly covers the ad spend. Below it, every dollar on ads loses money. Above it, the ads are profitable.
It depends only on margin:
break-even ROAS = 1 ÷ margin
where margin is the share of the selling price left after all the variable costs of an order, as a decimal.
A worked example
A product sells for $60. Per order:
| Cost | Amount |
|---|---|
| Product cost | $22 |
| Shipping and packaging | $8 |
| Payment fees | $2 |
| Total variable cost | $32 |
| Left per order | $28 |
The margin is 28 ÷ 60 = 0.467, or about 47%. So:
break-even ROAS = 1 ÷ 0.467 = 2.14
At a ROAS of 2.14, the ads cost exactly what the orders earn. At 3, there is profit. At 1.8, the campaign loses money even though it "returns" $1.80 for every dollar spent.
The same sum gives the most you can pay in ad cost for one order: $28. If the ads cost more than $28 per sale, each sale loses money.
Why the same ROAS means different things
Break-even ROAS changes a lot with margin:
| Margin | Break-even ROAS |
|---|---|
| 80% (digital product) | 1.25 |
| 60% | 1.67 |
| 50% | 2.00 |
| 40% | 2.50 |
| 30% | 3.33 |
| 20% | 5.00 |
A software or digital-download business with high margins can run profitable ads at a ROAS of 1.5. A shop selling low-margin electronics might need 5 or more just to break even. That is why comparing ROAS figures between businesses, or copying a "good ROAS" from a blog, is misleading.
Costs people forget
The break-even figure is only as good as the margin behind it. Common gaps:
- Payment processing fees. A few percent of every order plus a fixed amount, and they apply to the whole order value.
- Free shipping. If you offer it, the shipping cost is yours.
- Returns and refunds. If 8% of orders come back, that cost belongs in the margin.
- Discount codes. Ads often run alongside promotions. The margin should be calculated on the discounted price.
- Platform and marketplace fees. Selling through a marketplace adds a commission per sale.
Fixed costs such as rent, salaries and software subscriptions do not belong in the break-even ROAS. It measures whether each ad-driven sale pays for itself. Whether the business as a whole is profitable is a separate question.
Beyond break-even
Break-even is a floor, not a target. A few things to consider once you know it:
Target ROAS. Most businesses want a profit on ad-driven sales, so they set a target above break-even. If the break-even is 2.14 and you want 15% of revenue as profit after ads, the target is 1 ÷ (0.467 − 0.15) ≈ 3.15.
Repeat customers. If customers buy again without more ads, the first order is worth more than its margin suggests. Some businesses deliberately run ads below break-even on the first order and make it back on later ones. That is a reasonable strategy only if you know your repeat rate.
Attribution. The revenue an ad platform claims is its own estimate. Platforms tend to claim credit generously. Compare the reported ROAS with what actually shows up in your sales over the same period.
Work it out
The break-even ROAS calculator finds the point where a product stops losing money from its price, unit cost, shipping and fees, and shows the most you can pay per order. To check a running campaign, the ROAS calculator takes revenue and spend and shows profit after ads and cost per order. If the fees are the unknown, the Stripe fee calculator works out what a card payment really costs. More tools for margins and pricing are in the profit section.