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Break-even ROAS is the return on ad spend where the ads pay for themselves and no more. It is 1 divided by your margin before ad costs, so a 45% margin breaks even at 2.22x. Enter one typical order and the calculator works out the margin, the break-even ROAS, the break-even CPA and the ROAS you need to keep a profit.
One typical order
Result
Break-even ROAS = 1 / margin before ad costs
Target ROAS = 1 / (margin - profit you want)
The margin here is what's left of the order after the product, the shipping and the payment fees, before any ad spend. An $80 order with a $32 product, $8 shipping and 5% fees leaves $80 - $32 - $8 - $4 = $36, which is a 45% margin. 1 / 0.45 = 2.22x.
| Margin before ads | Break-even ROAS | Target for 10% profit |
|---|---|---|
| 70% | 1.43x | 1.67x |
| 60% | 1.67x | 2.00x |
| 50% | 2.00x | 2.50x |
| 45% | 2.22x | 2.86x |
| 40% | 2.50x | 3.33x |
| 30% | 3.33x | 5.00x |
| 25% | 4.00x | 6.67x |
| 20% | 5.00x | 10.00x |
Below a 25% margin the targets climb fast. At 20% you need a 10x ROAS to keep a 10% profit, which few accounts can hold for long. At that point, raising prices or bundling products usually helps more than a bid change.
The ROAS calculator checks the ROAS you're getting now against this line, and my ecommerce profit framework covers margin by product. For the full background, see ROAS for PPC.
It is the return on ad spend at which the ads pay for themselves and nothing more. Below it you lose money on every order the ads bring in. Above it the campaign makes a profit.
Divide 1 by your profit margin before ad costs. An $80 order that costs $44 to make, ship and process leaves $36, a 45% margin. 1 / 0.45 = 2.22x break-even ROAS.
Your break-even ROAS plus enough room for the profit you want and your fixed costs. To keep 15% of revenue as profit on a 45% margin, you need 1 / (0.45 - 0.15) = 3.33x.
Use it as the floor for repeat buyers and existing products. For first orders from new customers, many brands accept a ROAS below break-even because the customer buys again. Only do that if you know your repeat rate.
The most you can spend in ads to get one order without losing money. It is the order value minus every cost of fulfilling it. On the $80 order above, it is $36.
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