ive@predovan:~/blog/break-even-roas$

Break-even ROAS: the number to know before you judge a campaign

“Our ROAS is 3. Is that good?”

It’s the question I hear most, and the honest answer is: it depends on your margin. ROAS tells you how much revenue comes back for every euro you spend on ads. It doesn’t tell you whether you made any money.

The formula

Break-even ROAS is simply:

break-even ROAS = 1 / gross margin

If you keep 40% of every sale after the cost of goods, your break-even ROAS is 1 / 0.40 = 2.5. Below 2.5 you lose money on every ad-driven sale. Above it, you make money.

A few examples:

  • 60% margin → break-even ROAS 1.67
  • 40% margin → break-even ROAS 2.5
  • 25% margin → break-even ROAS 4.0

So a ROAS of 3 is healthy for the first two stores and costs money for the third.

What the simple formula leaves out

Gross margin is a starting point, not the whole story. Before you set targets, take these into account:

  • Shipping you pay for. Free shipping comes straight out of margin.
  • Returns. In fashion especially, part of the revenue Google reports will come back.
  • Payment fees. Usually 1–3% of every order.
  • Repeat purchases. If customers come back, a first order at break-even can still be very profitable over time.

What to do with it

  1. Work out your real margin per product category, not one average for the whole store.
  2. Set ROAS targets per campaign above that category’s break-even.
  3. Stop judging campaigns by whether the ROAS “looks good”. Judge them against break-even.

You can try your own numbers in the ROAS check on the homepage.

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