About this tool
Break-even ROAS, explained
Find the return on ad spend your campaigns need to cover their cost, once the cost of goods, refunds, shipping and payment fees are taken out of each order. See the most you can pay for one order and what your current ROAS earns or loses each month.
How to use it
- 1Set your Average order value and Gross margin, or start from a preset: Fashion, Beauty or Electronics.
- 2Under Costs per order, set the Refunds, Shipping and fulfilment and Payment fees.
- 3Under Your ads, set Your current ROAS, Monthly ad spend and a Target profit.
- 4Read the Break-even ROAS, the Max ad cost per order, the monthly profit at your ROAS and the one order, step by step table.
How it works
How break-even ROAS is calculated
ROAS, return on ad spend, is the revenue a campaign brings in divided by what it cost. Revenue is not profit: only what is left of each order after its costs can pay for the ad.
The calculator follows one order. The refund rate removes that share of the order value, and the cost of goods is applied to what is kept. Payment fees are a percentage of the full order value, and shipping and fulfilment is a fixed amount per order. What remains is the Max ad cost per order, also called break-even cost per acquisition: pay more than that to win an order and the order loses money.
Break-even ROAS is the order value divided by that amount. With no other costs it comes down to 1 divided by the gross margin, 2.5× at 40%. With the starting figures, an $85 order at 40% margin, 5% refunds, $6 of shipping and 2.9% fees, $23.84 is left, so ads need 3.6× to break even. Because shipping is a fixed amount, a higher order value lowers the break-even ROAS.
Monthly profit at your ROAS is the orders your spend brings in, times what each order leaves, minus the spend: at 3× on $10,000 a month the starting figures lose $1,588, and the chart plots that profit across ROAS values. If an order loses money before any ad, there is no break-even point. Only the first order is counted, so repeat purchases can make a lower ROAS profitable over time.
Left per order = Order value × (1 − Refunds) × Margin − Order value × Fees − Shipping. Break-even ROAS = Order value / Left per order
When to use it
Ways people use it
Setting a target ROAS in ad platforms
Use the break-even figure as the floor for a target ROAS bid strategy, and the ROAS for your target profit as the goal.
Reading campaign reports
Enter a campaign's ROAS and spend to see its monthly profit or loss, instead of judging a 2× ROAS without knowing your costs.
Testing a price or cost change
Compare with a scenario B to see what a better supplier price, a free shipping threshold or fewer refunds does to the break-even point.
FAQ
Questions people ask
How do I calculate break-even ROAS?
Divide the order value by what one order leaves after the cost of goods, refunds, shipping and fees. With only a margin to count, that is 1 divided by the margin: at 40%, 1 / 0.40 = 2.5. Below that return, ads cost more than the profit they bring in.
What is a good ROAS?
One above your own break-even point, with room for the profit you want. A ROAS that is excellent for a high-margin product can lose money for a low-margin one.
What is the difference between ROAS and ROI?
ROAS compares revenue to ad spend only. ROI compares profit to the total investment. A campaign can show a ROAS above 1 and still lose money once the cost of goods is counted.
What margin should I use, gross or net?
Use gross margin, the revenue left after the cost of the products sold. Refunds, shipping and payment fees have their own fields here, so do not take them out of the margin twice.