Break-even ROAS calculator
Break-even ROAS is the return on ad spend at which your ads pay for themselves and nothing more. It equals 1 divided by your gross margin. A product with a 40% margin breaks even at a ROAS of 2.5 (1 / 0.40). Every $1 of ads needs $2.50 of revenue, and the $1 of margin in that revenue pays for the ad.
The same numbers give your maximum cost per purchase (CPA). It is the contribution per order: the price minus the cost of goods and the other per-order costs. Pay more than that per purchase and each sale loses money.
- Break-even ROAS
- 2.5x
- 1 / 40% gross margin.
- Max CPA at break-even
- $40.00
- Contribution per order: price minus costs.
- Gross margin
- 40%
- $40.00 left per order before ads.
How it is calculated
- Contribution per order = price - cost of goods - other variable costs per order
- Gross margin = contribution per order / price
- Break-even ROAS = 1 / gross margin (the same as price / contribution per order)
- Max CPA at break-even = contribution per order
- Target ROAS for a margin you want to keep = 1 / (gross margin - target margin)
Worked example
A product sells for $100. It costs $55 to make and $5 to ship and process. Contribution per order is $40 and gross margin is 40%. Break-even ROAS is 1 / 0.40 = 2.5, and the max CPA is $40.
To keep 15% of the price as profit after ads, the target ROAS is 1 / (0.40 - 0.15) = 4.0. That is a max CPA of $25.
How to calculate break-even ROAS
Three steps. Add up every cost that scales with one order: the product, shipping you pay for, payment processing, packaging, and the returns you expect. Subtract that total from the price to get the contribution per order. Divide the price by the contribution, or 1 by the margin, and the result is the ROAS at which an order pays for its own ad.
The table shows what the formula does to a margin. A thin margin needs a high ROAS because each sale leaves little to pay for the ad.
| Gross margin | Break-even ROAS | What $1 of ads must bring in |
|---|---|---|
| 10% | 10.0 | $10.00 |
| 20% | 5.0 | $5.00 |
| 25% | 4.0 | $4.00 |
| 33% | 3.0 | $3.00 |
| 40% | 2.5 | $2.50 |
| 50% | 2.0 | $2.00 |
| 60% | 1.7 | $1.67 |
The costs people leave out
Most break-even figures are too low because the margin behind them counts only the product. Take a $100 order with a $40 product cost. That looks like a 60% margin and a break-even ROAS of 1.7. Add the costs that come with every order and the picture changes.
Payment processing at 2.9% plus 30 cents takes $3.20 of it. Shipping and the box take $9.50 together. A 5% return rate on a $100 order costs $5 on average. The contribution drops to $42.30 and the margin to 42%, so the break-even ROAS rises from 1.7 to 2.4 for the same product. An account run at a ROAS of 2.0 would look profitable in the ad platform and lose money on every order.
Leave out the costs that do not change with one more order: salaries, rent, software, the agency fee. They belong in the profit and loss statement, not in this number. Break-even ROAS answers one question: does each extra order pay for its own ad.
What is a good break-even ROAS?
No figure is good or bad on its own, because the number is your margin turned upside down. A service with a 70% margin breaks even at 1.4. A retailer with a 20% margin needs 5.0 to stand still. Whether a ROAS of 2.3 is good depends on the margin behind it. At a 43% margin or more it makes money; below that it loses money, whatever an industry average says.
The figure to compare against a benchmark is not the break-even ROAS but the gap between it and the ROAS you achieve. That gap, times your revenue, is the profit the ads leave after they pay for themselves.
From break-even to a target ROAS
Break-even is the floor. To make money, decide how much of the price to keep after ads, subtract that from the margin, and divide 1 by the rest. At a 40% margin, keeping 15% means a target ROAS of 1 / (0.40 - 0.15) = 4.0. The calculator returns that target and the matching cost per order. That cost is the highest cost per result you can set in Meta's or Google's bidding without losing money.
Definitions
FAQ
Divide 1 by your gross margin, where the margin is the share of the price left after the product, shipping, payment processing, packaging and expected returns. A 40% margin gives 1 / 0.40 = 2.5. The same answer comes from price divided by contribution per order: $100 / $40 = 2.5.
Only if your margin is above 43%, because 1 / 0.43 = 2.3 is the break-even point for that margin. Below it the ads lose money at a 2.3 ROAS; above it they make some. A ROAS means nothing without the margin behind it.
Use the share of the selling price left after every cost that scales with each order. That means the product, shipping you pay for, payment processing, packaging and the returns you expect. Leave out fixed costs such as salaries, rent and software. They do not change with one more order, and the break-even ROAS answers a narrower question: does each extra order pay for its own ad.
At break-even the ads return exactly their cost, so the profit on each order is zero. To make money you need some margin to remain after ads. Enter the net margin you want to keep and the calculator returns the target ROAS. The target rises fast as that margin approaches your gross margin, because less and less remains to pay for ads.
Yes. A discount lowers the price but not the cost of goods, so the margin shrinks and the break-even ROAS rises. Run the calculator with the discounted price when you plan a sale, and check that the ROAS you expect during the sale stays above it.
Meta's cost per result goal bid strategy and Google's Target CPA bidding both take a cost target per result. When the result is a purchase, the max CPA from this calculator is the highest target you can set without losing money on each order. A target below it leaves room for profit.
Yes when customers buy more than one item or you sell many products. Use the average order value as the price and the average cost of goods per order as the cost. The break-even ROAS then applies to the account or the campaign rather than to a single product.
Then there is no break-even ROAS. Every order loses money before ads, and no ROAS fixes that. The calculator shows a message instead of a number. Raise the price, cut the per-order costs, or run the numbers on the average order rather than on the cheapest product.
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