Calculating Break-Even ROAS to Stop Losing Money on Ads

You want to make profit and stay ahead. There are many ways to get there, one of the most powerful being optimizing your ad spend. Ads give the spark that keeps your sales engine running.

Yet, many merchants run ads on gut feeling. They look at the numbers and think, 

“Hey, for every $1 I spend, I’m getting $2 back. We’re good.”

But the problem is,  a high ROAS doesn’t always mean you’re making money. There is more to discover!

Without a reliable metric to confirm if your ad spend is truly driving sustainable profit, you’re guessing, and it’s only a matter of time before every new sale can end up costing more than it earns. 

Which is why you need to know your Breakeven ROAS (BEROAS) - the metric that ensures your campaign decisions are focused around a clear minimum performance target.

In this guide, we’ll break down what BEROAS is, how it differs from ROAS, how to calculate breakeven ROAS, and how to use it to get the maximum return on every ad.

What exactly is BEROAS, in simple terms?

BEROAS (Break-Even ROAS), also known as Target ROAS, tells you the minimum ROAS you need to earn back for what you spend on ads. 

For instance, if you’re spending $20,000 on advertising, you might think you’re profitable with a 4x or 6x ROAS. But if your BEROAS is 8x after accounting for all variable costs (like sourcing, shipping, and transaction fees) and your actual ROAS is lower, you’re losing money no matter how good the reports might look.

In fact, BEROAS factors in your product costs first, then tells you exactly how much you can afford to spend on ads while maintaining profitability. The focus here is on steady, long-term profitability, not just quick wins! 

How is BEROAS different from ROAS?

BEROAS is one of the many derivatives of ROAS, both important metrics used to measure the effectiveness of your advertising campaigns and to understand the financial impact of your advertising efforts.

The Return on Ad spend (ROAS) metric provides insight into how effectively a campaign turns ad spend into revenue. It is calculated as:

ROAS = Total Ad Revenue ÷ Total Ad spend

For a campaign to be financially feasible, it must at least cover its costs. This is the break-even point, where it pays for itself but generates no profit. Break Even ROAS (BEROAS) helps to estimate this critical number. 

How to calculate BEROAS easily?

Here is a step-by-step guide to calculating your BEROAS: 

1. Know your selling price

2. Find your COGS -  product cost, transaction fees, shipping, and handling

3. Do the quick math:

 Selling price ÷ (Selling price – COGS)

You’ve got your Target ROAS to measure how your ads need to perform!

Not confident doing the math yourself? No worries! 

You can try our Breakeven ROAS Calculator to get instant results.

How do these figures work together? 

Start by calculating your BEROAS before setting your ad budget. This gives you a clear target for smarter planning, better budget allocation, and more focused optimization. After running your ads, compare your actual ROAS to this benchmark number to see where you stand. If, 

ROAS > BEROAS – You’re profitable and can scale campaigns confidently.

ROAS = BEROAS – You’re breaking even ( no profit, no loss! Time to pause or cut back on underperformers. )

ROAS < BEROAS – You’re losing money, and each click reduces your margins. 

The Two Main Types of BEROAS for Your Store

You can measure ROAS and BEROAS at two levels: 

Product-level BEROAS

• Calculates BEROAS and ROAS for each product individually. Ensure you allocate a percentage of shipping cost and transaction cost because they are not available at the product level.

• Shows which products can handle more ad spend and which need tighter control.

Store-level BEROAS

• Calculates overall daily ROAS and BEROAS for the entire store or campaign portfolio. This includes all your products, both performing and non-performing. 

• Helps in overall ad budget planning

Which costs could be driving your BEROAS at each level? Let’s see. 

How does Cost Components Impact Your Break Even ROAS

Analyzing ad performance based on ROAS alone won’t give you a true picture of profitability, because there are other costs involved before ad spend even comes into play. By taking these costs into account, you can set a more realistic ROAS target and protect your profit margin. Otherwise, you risk assuming that your ads are driving profit when, in reality, the expenses are quietly eroding it.

Let’s see how this plays out in your store’s numbers, starting with the big picture. 

Store-level Monthly ROAS

Below is a three-month overview of a store’s ROAS performance.

When you look at the store-level numbers, it feels like things are moving in the right direction. Sales are growing month after month, and at first glance, profitability looks healthy.

For instance, look at the month of August. Sales look pretty good and you think you have earned enough to be profitable. For  $1 spend on ads you are getting  $2.5 in returns (Nice!). But once you calculate your Target ROAS, you realize that your returns are below this target ($2.8). In other words, your ads aren’t generating enough returns to cover high procurement costs, reinvest in ads and still stay profitable. 

But do you think July is profitable? Of course, it has met its target, but what about the operational expenses that take a cut from your profits afterward? So even breaking even is not enough.

What’s ideal is what you had in June. Your COGS are lower,  ad spend is relatively lower than other months, and you’re getting great returns too ( $4 for  $1). 

So, what does this tell you? 

“Reduce your COGS”

Because your COGS have a direct impact on your BEROAS. The higher they are, the thinner your profit margin, leaving you with a Target ROAS that might not always be practical to achieve. 

Great, so you’ve figured out your Target ROAS. Does this mean your ads will now stay profitable?

Maybe… but not quite. There’s another crucial step.

When you calculate your overall (store-level) BEROAS remember,  every product contributes a different cost structure. This means you get less visibility into ‘which products’ are failing to meet their Target ROAS. To avoid pouring money into non-profitable campaigns, you need to go deeper…. down to the product-level or even variant-level BEROAS, where your actual margins come into play.

Let’s gauge what’s happening at the product-level.

Product-level ROAS

Here’s a comparison of three products with different cost scenarios

At the product level, you get a detailed breakdown of product-related costs: selling price, product cost, transaction fee, shipping and handling, and ad spend. You can see how your target ROAS interacts with these costs to identify which products are profitable or risky, where to push or cut campaigns, and where costs can be adjusted to maintain profitability.

For instance, 

Product 1 seems very profitable, likely because you sourced it at a lower cost. The ROAS (3.3) is about 2× the BEROAS (1.7), meaning your ads are generating roughly twice the revenue needed to break even. This gives you ample room to invest more in campaigns, if needed.

Now look at Product 2. It’s just breaking even, so there’s no room for additional ad spend. Even though the ad spend is lower than Product 1, high product procurement costs are taking a huge cut on the profit. 

In Product 3, the ROAS (2.4) is below BEROAS (4.4), meaning you’re losing money at the current ad spend. Because your product procurement costs are too high ($80) and you are spending relatively more on ads ($50) without generating enough returns to cover the costs, leaving the product unprofitable. Underperforming products like these, if neglected, can drag down overall results over time, despite other products being highly profitable. 

Now you’ve got the plan: where to invest, what to invest in, and how much to spend. 

But here’s an important reminder: your profits are only safe as long as you don’t overspend on ads, even for products that seem profitable. As you’ve seen, if your BEROAS is lower than your ROAS, you’re in a good spot. However, if you start spending on campaigns without a strategy, you risk having too little left to cover your operating costs. You need a healthy net margin that covers business expenses, leaves profit, and fuels future growth. And the key to achieve this? 

 Lower your BEROAS as much as possible and watch out for your operational expenses! 

Conclusion 

A high ROAS shows how efficiently your ads generate revenue, but it doesn’t tell the whole profit story. This revenue still needs to cover product costs, operating expenses and future ad investments. If COGS and ad spend eat up most of that margin upfront, you’re left with little profit and nothing to invest in growth.

That’s why you need to measure it against your BEROAS (Breakeven ROAS), a benchmark that ensures your ads aren’t just generating revenue, but also making way for actual profit.

So, keep your key costs in check and make sure BEROAS stays positive so you can guide your ad investments wisely. And when ad spend is set right, every profitable conversion gives you an edge over others.