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Break-Even ROAS: How to Work It Out

By Selling Fee Tools team ·

Return on ad spend (ROAS) is revenue divided by ad spend: spend $10 and make $40 in sales, and your ROAS is 4. Whether 4 is good depends entirely on your margins. Break-even ROAS is the ROAS at which ads pay for themselves and nothing more; below it, every order from an ad loses money. This guide shows how to work it out from your own numbers.

Step 1: contribution margin

Start with one typical order and take off every cost that comes with it:

  • product cost (COGS)
  • shipping you pay
  • platform and payment fees, as a percentage of the price
  • other per-order costs, such as packaging

What’s left is the contribution margin: the money each order has to pay for advertising and profit.

Step 2: break-even ROAS

Break-even ROAS = price ÷ contribution margin

At that ROAS your ad spend per order equals the margin, so profit is exactly zero. Two related numbers come from the same margin:

  • Max CPA, the most you can pay in ads to win one order, is the contribution margin itself.
  • Break-even ACoS, the way Amazon Ads reports it, is the margin as a percentage of the price. ACoS is ad spend divided by sales, the inverse of ROAS.

A worked example

A $50 product that costs $15 to make, $6 to ship and $1.50 in packaging, sold with a 3% platform fee and 2.9% payment fee:

Price$50.00
Fees: 5.9% of $50−$2.95
Product, shipping and packaging−$22.50
Contribution margin$24.55 (49.1% of the price)
Break-even ROAS$50 ÷ $24.55 = 2.04
Break-even ACoS49.1%
Max CPA$24.55

So a campaign showing a ROAS of 3 is profitable for this product, and one showing 1.8 is losing about $3.20 an order.

Target ROAS for the profit you want

Break-even means no profit. To keep, say, 10% of the price ($5) as profit after ads, set that aside and the rest of the margin is your ad budget per order: $24.55 − $5 = $19.55. Your target ROAS is then $50 ÷ $19.55 = 2.56. If the profit you want is larger than the whole margin, no ROAS can reach it: the product needs a higher price or lower costs before it can be advertised profitably.

Price or cost: which matters more?

Moving the price and the product cost by 10% each way changes break-even ROAS like this:

Cost −10%Cost as isCost +10%
Price −10% ($45)2.112.272.45
Price as is ($50)1.922.042.17
Price +10% ($55)1.791.881.98

For this product a 10% price change moves break-even ROAS more than a 10% cost change, because the price is larger than the product cost. Products with thin margins have high break-even ROAS and are hard to advertise at all.

Common mistakes

  • Forgetting fees. Marketplace and payment fees can take 10% of the price or more; get the exact figure for your platform from our fee calculators.
  • Using platform ROAS as profit. The ROAS in an ad dashboard counts revenue, not margin. Compare it with your break-even ROAS, not with 1.
  • Ignoring returns. If a share of orders is refunded, add the cost of returns to your per-order costs.

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