Find the lowest ROAS your ads can run at without losing money, the most you can pay per sale, and the ROAS you need to hit your target profit margin.
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How break-even ROAS works
ROAS (return on ad spend) = revenue from ads ÷ ad spend. A ROAS of 3 means £3 in sales for every £1 spent.
Break-even ROAS = order value ÷ profit per order before ads. At this ROAS, ad costs use up all your profit.
Break-even CPA = profit per order before ads: the most you can pay for each sale.
Worked example
| Amount | |
|---|---|
| Order value (incl. 20% VAT) | £60.00 |
| Less VAT | −£10.00 |
| Product cost | −£18.00 |
| Shipping and packing | −£5.00 |
| Payment fees (2.9% + £0.30) | −£2.04 |
| Profit before ads | £24.96 |
| Break-even ROAS | 60 ÷ 24.96 = 2.40 |
| ROAS for a 10% margin | 3.01 |
So this shop loses money below a ROAS of 2.40, and needs about 3.0 to keep a 10% profit margin.
Tips
- Use a target ROAS above break-even to leave room for returns and overheads.
- If customers buy again, you can accept a lower ROAS on the first order. Work out your lifetime value first.
- Higher prices or bundles raise order value and lower your break-even ROAS.
Frequently asked questions
What is a good ROAS?
Any ROAS above your break-even point is profitable. Many online shops need 2 to 4, but it depends on your margins.
How do I calculate break-even ROAS?
Divide your order value by your profit per order before ad costs. Or, roughly, 1 ÷ your profit margin.
Should I include VAT?
Include it in the order value if your ad platform reports revenue with VAT, but take it out of your profit, as this calculator does.
What is the difference between ROAS and ROI?
ROAS compares revenue with ad spend. ROI compares profit with total cost.
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