Break-Even ROAS Explained: The Number Your Ad Dashboard Does Not Show
By ProfitIQ · Updated · 3 min read
ROAS in one paragraph
ROAS (return on ad spend) is revenue attributed to ads divided by what you spent on them. Spend $500 and the platform reports $1,500 of sales: ROAS is 3.0. It looks like a profit measure, but it contains no costs. The ad platform has no idea what your products, couriers or returns cost.
The break-even formula
contribution margin = (price − cost of goods − shipping − fees) ÷ pricebreak-even ROAS = 1 ÷ contribution margin
Contribution means what each sale contributes towards ad spend and overheads. Anything above break-even ROAS is profit after ads; anything below is a loss, however healthy the number looks in the ad dashboard.
Contribution margin: 25%
- Break-even ROAS:
- 4.00
- What a 3.0 ROAS means:
- A loss
Contribution margin: 30%
- Break-even ROAS:
- 3.33
- What a 3.0 ROAS means:
- A small loss
Contribution margin: 33.3%
- Break-even ROAS:
- 3.00
- What a 3.0 ROAS means:
- Exactly break-even
Contribution margin: 40%
- Break-even ROAS:
- 2.50
- What a 3.0 ROAS means:
- Profit after ads
Contribution margin: 50%
- Break-even ROAS:
- 2.00
- What a 3.0 ROAS means:
- Comfortable profit after ads
Contribution margin: 60%
- Break-even ROAS:
- 1.67
- What a 3.0 ROAS means:
- Strong profit after ads
A worked example
Break-even on a $50 product
- Price (excluding tax)
- $50.00
- Cost of goods
- − $20.00
- Shipping paid
- − $5.00
- Payment fees
- − $2.50
- Contribution per order
- $22.50
Contribution margin 45%, so break-even ROAS is 1 ÷ 0.45 = 2.22. Illustrative figures.
Why returns push break-even higher
The ad platform counts a sale when the order is placed. If some orders are returned, you earn nothing on them but still pay the courier. Suppose 100 orders are placed ($5,000 reported revenue), and 15 come back. The other 85 earn $22.50 each; the 15 returns cost $10 each in courier charges out and back, with the goods restocked.
The same campaign after returns
- Revenue the platform reports (100 orders)
- $5,000.00
- Contribution on 85 delivered orders
- $1,912.50
- Courier cost of 15 returns
- − $150.00
- Contribution after returns
- $1,762.50
That is 35.25% of reported revenue, so the real break-even ROAS is 1 ÷ 0.3525 = 2.84, not 2.22. Illustrative figures.
Cash on delivery makes this bigger
Where buyers can refuse a parcel at the door, return rates are often higher and arrive days after the ad report closes. Measure campaigns on profit after returns, not on placed orders.
ROAS, MER and CAC
- ROAS is revenue ÷ ad spend for one campaign or platform, as that platform reports it.
- MER (marketing efficiency ratio) is total revenue ÷ total ad spend across every channel, and does not depend on attribution.
- CAC (customer acquisition cost) is ad spend ÷ new customers acquired.
- Profit after ads is profit on earned orders minus ad spend. It is the only one of these that is in money.
Doing this automatically
ProfitIQ works out break-even ROAS for each product from the contribution it has actually earned on real orders, so it moves when your costs, couriers or return rate move. See profit-based ROAS.
Frequently asked questions
What is a good ROAS?
There is no universal good ROAS. A good ROAS is one above your break-even ROAS, which depends entirely on your margins. A 2.0 ROAS is excellent at a 60% contribution margin and a loss at 30%.
How do I calculate break-even ROAS?
Divide 1 by your contribution margin, where contribution margin is the price minus cost of goods, shipping and fees, divided by the price. A 40% margin gives a break-even ROAS of 2.5.
Why is my profit negative when my ROAS looks good?
Because ROAS ignores what the goods, shipping, fees and returns cost. If your break-even ROAS is higher than the ROAS the platform reports, every campaign loses money.
Should I use ROAS or MER?
Use both for different jobs. ROAS compares campaigns on one platform; MER shows overall efficiency without depending on attribution. Neither replaces profit after ads.