ROAS and Break-Even ROAS Calculator
ROAS on its own says nothing about profit. Enter your ad spend, the revenue it brought in and your margin, and see the ROAS you need just to break even.
Same period and currency as the spend.
These ads make money on the first order.
Your ROAS
2.50
Break-even ROAS
1.92
At a 52.0% margin
Profit after ad spend
$600
12.0% of revenue
ROAS to keep 20% profit
3.13
The formulas
ROAS (return on ad spend) = revenue from ads ÷ ad spend. A ROAS of 3 means every dollar of ads brought back three dollars of sales.
Contribution margin = (order value − product cost − shipping you pay − payment fees − other per-order costs) ÷ order value. It is what each sale leaves over, before ads, to pay for the ads.
Break-even ROAS = 1 ÷ contribution margin. At a 50% margin you break even at a ROAS of 2; at 25% you need 4. Below break-even, the ads lose money on every sale they bring in, however good the ROAS looks in the ad platform.
Target ROAS for a profit = 1 ÷ (margin − the profit share you want). To keep 20% of revenue as profit on a 52% margin, you need 1 ÷ 0.32, a ROAS of about 3.13.
A worked example
An $80 order costs $28 in goods, $8 in shipping and 3% in payment fees ($2.40). That leaves $41.60, a 52% contribution margin, so the break-even ROAS is 1 ÷ 0.52 = 1.92.
Spend $2,000 on ads that bring in $5,000 and the ROAS is 2.5. That is above 1.92, so the ads made money: $5,000 × 52% = $2,600 of margin, minus $2,000 of spend, is $600 of profit, 12% of the revenue. If you wanted 20%, you would need a ROAS of 3.13.
Common ROAS mistakes
- Using gross margin that ignores shipping and fees. On a low-priced product, shipping and payment fees can take a large share of the order, and the break-even ROAS moves a long way.
- Forgetting discounts. A 20% off code comes straight out of the margin. Work out the break-even ROAS on the discounted price.
- Trusting the platform’s revenue alone. Each ad platform counts sales it can link to its own ads, and two platforms can both claim the same order. Compare with your Shopify sales for the same period.
- Judging new-customer ads on the first order. If customers come back, a first order at or below break-even can still pay off. Check your lifetime value before cutting a campaign that wins new customers.
What it does not do
It does not know which sales the ads really caused, and it treats every order as the same margin. For customers who come back, work out what they are worth over time with the LTV calculator. To track which campaign brought which visit, tag your links with the UTM builder. The ads agent writes and checks ads for your customer personas.
Questions people ask
What is a good ROAS?
Any ROAS above your break-even ROAS is profitable on the first order, and that number depends on your margin. A store with 70% margins breaks even at about 1.43; a store with 25% margins needs 4. A single "good ROAS" figure means nothing without the margin behind it.
What is the difference between ROAS and ROI?
ROAS divides revenue by ad spend. ROI divides profit by spend. A ROAS of 3 on a 30% margin is an ROI of −10%: $3 of sales leaves $0.90 of margin for each $1 spent.
How do I calculate break-even ROAS?
Divide 1 by your contribution margin as a decimal. A 40% margin gives 1 ÷ 0.4 = 2.5.
Should I include shipping in the margin?
Include what you pay for shipping and packing, minus anything the customer pays you for it. Free shipping is a cost like any other.
Is this ROAS calculator free?
Yes. It runs in your browser, needs no sign-up, and nothing you type is sent anywhere.
Written by Tilly. Free to use with no sign-up. The tool runs in your browser, and nothing you type into it is sent or stored.
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