- Break-even ROAS = 1 ÷ gross margin.
- Include shipping, fees and returns in margin.
- Set your target above break-even.
The formula
Gross margin is revenue minus the direct cost of the sale, divided by revenue. If a $100 order costs $60 to produce and ship, margin is 40%. Break-even ROAS is 1 ÷ 0.40, or 2.5.
At 2.5, a $1,000 ad budget must generate $2,500 of revenue to cover the product cost and the ads.
Worked example for a US online store
A store sells a $80 item that costs $30 to make, $8 to ship and $3 in payment fees. Direct cost is $41, so margin is 48.75% and break-even ROAS is 2.05.
If campaigns report a ROAS of 3.1, each ad dollar leaves about $1.05 after product costs and ad spend are covered, before overhead.
Adjust for returns
Returns reduce revenue after the sale. If 10% of orders come back, effective revenue falls by 10%, so the ROAS you need rises by about the same proportion. Use net revenue where you can.
Use it to cap bids
Many platforms let you set a target ROAS. Set it a little above break-even and review weekly. Raise it when overhead grows and lower it only with a plan for repeat purchases.
What ROAS do I need to avoid losing money?
Questions about Paid Media Math
Does break-even ROAS include overhead?
Usually not. It covers product costs and ads. Add a buffer for overhead when you set a target.
Can break-even ROAS be below 1?
No. Margin cannot exceed 100%, so break-even ROAS is always at least 1.
How often should I recalculate?
Whenever prices or costs change, and at least each quarter.
Key terms
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