Break-even ROAS is the return on ad spend at which the gross profit from your ad-driven sales exactly covers what you spent on the ads. Above it, the campaign contributes profit. Below it, every sale costs you money. It is the first number to work out before you set a ROAS target.
The formulas
- ROAS = revenue from ads ÷ ad spend
- Break-even ROAS = 1 ÷ gross margin
- ACOS = ad spend ÷ revenue from ads, the inverse of ROAS
- Contribution after ads = (revenue × gross margin) − ad spend
Gross margin is written as a decimal: a 40% margin is 0.40, so break-even ROAS is 1 ÷ 0.40 = 2.5. Seen as ACOS, break-even is simply your margin, 40%.
A worked example
ROAS: 10,000 ÷ 2,500 = 4.0
Gross profit: 10,000 × 0.40 = 4,000
Contribution after ads: 4,000 − 2,500 = 1,500
Break-even ROAS is 2.5, and the campaign is running at 4.0, so it contributes profit. At a ROAS of 2.0 the same spend would bring in 5,000, a gross profit of 2,000, and a loss of 500 after ads.
Break-even ROAS at common margins
- 20% margin: 5.0
- 25% margin: 4.0
- 30% margin: 3.33
- 40% margin: 2.5
- 50% margin: 2.0
- 60% margin: 1.67
The lower the margin, the higher the return you need just to stand still.
Get the margin right first
The formula is only as good as the margin you put into it.
- Include product cost, shipping, packaging, and payment or marketplace fees.
- Allow for discounts and returns, which reduce the revenue you keep.
- Use product or category margins where you can. One blended figure hides the low-margin items that lose money at an average-looking ROAS.
What the number does not tell you
- It relies on reported revenue. ROAS uses the revenue the ad platform attributes to itself, which can be higher or lower than what your store actually recorded.
- It ignores fixed costs. Salaries, software and rent are not in the gross margin, so a practical target sits above break-even.
- It ignores repeat orders. A first order close to break-even can still be worth buying if those customers come back.
Run your own numbers
Enter your revenue, ad spend and gross margin in the free ROAS and break-even calculator to see ROAS, ACOS and contribution after ads together. If you are not sure the revenue figure itself can be trusted, start with conversion tracking checks, and use the campaign URL builder to keep campaign names consistent.
Not sure your ad numbers add up?
Exultant Commerce checks purchase events, revenue values and product IDs so campaign reporting matches what your store records.
Discuss your tracking →Figures in this guide are illustrative examples, not benchmarks.