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Break-even ROAS (return on ad spend)

Break-even ROAS is the return on ad spend at which the margin from ad-driven sales exactly covers the ad spend, leaving neither profit nor loss.

How it works

ROAS counts revenue, but the store pays for its goods out of that revenue. What is left is the margin, and break-even ROAS is the line where that margin just pays for the ads. Above the line, the ads add profit; below it, each unit of spend brings back less margin than it costs. The thinner the margin, the higher the line.

Which costs you count moves the line. Counted from gross margin, it leaves out delivery, payment fees and returns. Counted from contribution margin, it takes them in and sits higher. The break-even ROAS guide goes through which costs belong in it.

There is no single benchmark: the line differs from store to store and often from category to category.

Formula

1 ÷ margin (as a share of revenue)

Example

Example store, not client data.

The tableware shop keeps 35% of revenue after the cost of goods. Break-even ROAS = 1 ÷ 0.35 = 2.86. Its actual ROAS is 4.5: 180,000 of revenue gives 63,000 of gross profit against 40,000 of spend, so 23,000 remains.

Now count delivery and payment fees too, at 10% of revenue. The contribution margin falls to 25%, and the line rises to 1 ÷ 0.25 = 4. The same ROAS of 4.5 now leaves 45,000 − 40,000 = 5,000 after the ads.

Not to be confused with

  • Target ROAS — the goal you give Google’s bidding. A target set exactly at break-even ROAS aims at zero profit from the ads.
  • POAS — return measured on profit instead of revenue. At break-even, POAS counted on the same margin equals 1.

Right and wrong readings

  • Wrong: “A ROAS of 4.5 is profitable for any store.” Right: at a 20% margin the line is 1 ÷ 0.2 = 5, so the same 4.5 loses money, because the line depends on margin.
  • Wrong: “Our markup is 35%, so break-even ROAS is 2.86.” Right: markup is counted on cost, margin on price. A 35% markup is a margin of 0.35 ÷ 1.35 = 25.9%, so the line is 3.86, not 2.86. This is the markup vs margin mix-up at work.
  • Wrong: “Account ROAS is above break-even, so every category pays off.” Right: account ROAS is an average. A category with a thinner margin has its own, higher line.