Your numbers
Use the same period for every value.
Total product sales ($)
$
10,000
Product COGS ($)
$
4,000
Fulfillment costs ($)
$
1,200
Fees ($)
$
800
Calculate break even ROAS
Break even ROAS = Total revenue ÷ Gross profit (profit before ads)
Gross profit = Total sales − variable costs
Break even ROAS
Profit margin
Break even ad spend
Target ROAS for a 40% margin
Target ROAS = 1 ÷ (margin − target profit %)
Profit you want
Target ROAS
10%
3.33
15%
4.0
20%
5.0
Break even ROAS = Revenue ÷ (Revenue − Variable costs)
Revenue minus variable costs is your profit before ads. That makes this the same as 1 ÷ gross profit margin %.
Revenue
$10,000
÷
(
Revenue
$10,000
−
Variable costs
$6,000
)
=
Break even ROAS
2.5
Every $1 on ads must bring back at least $2.50
01
Use it as your kill line.
02
Aim above it, not at it.
03
Check it product by product.
01
Work backward from your revenue goal.
Divide your sales goal by your target ROAS to get your ad budget. If your ads can’t hit that ROAS, lower the sales goal instead of raising the budget.
02
Treat each increase as a test.
Raise your budget a little and see what each dollar brings back. When returns get close to break even, the test has given you its answer.
03
Lower costs to lower the line.
Before you push your ads harder, look at your costs. Better supplier prices, bundled products, and a free shipping minimum all make each sale more profitable.
Break even ROAS = 1 ÷ gross profit margin
Margin → break even ROAS
25% margin
4.0
40% margin
2.5
60% margin
1.67
01
What is a good ROAS?
A good ROAS is one above your break even ROAS. A 25% margin needs a ROAS above 4.0 to make money. A 60% margin needs only above 1.67.
02
How do you calculate break even ROAS?
Divide revenue by profit before ads. Break even ROAS = Revenue ÷ (Revenue − Variable costs). It also equals 1 ÷ gross profit margin.
03
Which costs go into the calculator?
Include costs that rise with each sale: product COGS, fulfillment, and fees. Leave out ad spend, because the result tells you how much you can spend.
04
Is break even ROAS the same as target ROAS?
No. Break even ROAS is the floor, where you make no profit. Target ROAS is the higher number you aim for to earn profit after ad costs.
05
Why check break even ROAS by product?
Margins differ across products. A store-wide number hides the products that lose money at your current ROAS.
06
Does break even ROAS cover fixed costs?
No. At break even, ads pay for the product and the ad spend only. Rent, salaries, and software come out of whatever you earn above it.
