Glossary
Break-even ROAS: formula, examples and a free calculator
Break-even ROAS is the ROAS at which an advert’s sales exactly pay for the goods, shipping, fees, returns and the ad: break-even ROAS = 1 ÷ returns-adjusted margin. A product that keeps 40% of its price excluding VAT after unit cost, shipping, fees and returns breaks even at 2.50×; one that keeps 25% needs 4.00×. Below that figure, every sale the advert buys costs more than it leaves behind.
Last checked · More glossary
What break-even ROAS means
Break-even ROAS is the lowest ROAS at which a product’s advertising pays for itself. At exactly that ROAS, what the sales leave after the goods, shipping, fees and returns equals the ad spend, and the profit is zero.
ROAS (return on ad spend) is revenue divided by ad spend. The returns-adjusted margin is the share of revenue you keep after unit cost, shipping you bear, payment fees and returns, before advertising.
The formula follows directly. At a ROAS of R, each €1 of ad spend brings €R of revenue, and that revenue leaves €R × margin to pay for the €1 of advertising. The two are equal when R = 1 ÷ margin.
How to compute the returns-adjusted margin
Returns-adjusted margin = (price excl. VAT − unit cost − shipping you bear − payment fee) × (1 − return rate) ÷ price excl. VAT. Work it out per product, and per variant where costs differ, because an average hides the variant that loses money.
Step 1: Take the price excluding VAT
Revenue is what you keep, not what the customer paid. At 20% VAT, a €49.95 price is €41.63 of revenue; using the gross figure overstates every margin on the sheet.
Step 2: Subtract the costs of the sale
Take off the unit cost you pay your supplier, the shipping you bear rather than charge, and the payment fee: usually a percentage of the price plus a fixed amount per transaction. Use the rates on your processor’s statement. The calculator takes a percentage only, so add the fixed amount to the shipping or unit cost. What is left is the contribution per order.
Step 3: Allow for returns
Multiply the contribution by (1 − return rate), using this product’s return rate rather than a store average. This counts a returned order as earning nothing and costing nothing, as if the unit were resold and the shipping and fee recovered, so it is the optimistic case. If a return also loses the unit and the shipping, the margin is lower: take off return rate × (unit cost + shipping + fee) ÷ price as well. In the example below, that moves break-even from 2.15× to 2.27×.
Step 4: Divide by the price
Contribution after returns ÷ price excl. VAT is the returns-adjusted margin. Break-even ROAS is 1 ÷ that figure.
Worked example (example figures)
A €49.95 price including 20% VAT is €41.63 excluding it. A unit cost of €14.00, €6.00 of shipping you bear and a 2.9% payment fee (€1.21) leave a contribution of €20.42. At a 5% return rate that becomes €19.40, which is 46.6% of €41.63. Break-even ROAS = 1 ÷ 0.466 = 2.15×. If returned units are written off, the break-even is 2.27×. Had the VAT been left in the price, the same product would appear to break even at 1.84×, a floor set too low.
Break-even ROAS by margin
Break-even ROAS moves inversely with margin: halving the margin from 50% to 25% doubles the ROAS needed, from 2.00× to 4.00×. The values below come straight from the formula. The second figure on each is the target ROAS for keeping 10% of revenue as profit, explained in the next section.
50% adjusted margin
Break-even ROAS 2.00×. To keep 10% of revenue: 2.50×.
45% adjusted margin
Break-even ROAS 2.22×. To keep 10% of revenue: 2.86×.
40% adjusted margin
Break-even ROAS 2.50×. To keep 10% of revenue: 3.33×.
30% adjusted margin
Break-even ROAS 3.33×. To keep 10% of revenue: 5.00×.
25% adjusted margin
Break-even ROAS 4.00×. To keep 10% of revenue: 6.67×.
Two products that look alike on a shelf, with margins of 45% and 30%, need 2.22× and 3.33× just to break even. No single account-level ROAS can show that gap.
Target ROAS for the profit you want to keep
Target ROAS = 1 ÷ (returns-adjusted margin − target net margin), where the target net margin is the share of revenue you want to keep as profit after advertising. At a 40% margin, breaking even needs 2.50× and keeping 10% of revenue needs 3.33×.
The required ROAS runs away as the target approaches the margin. At a 40% margin, a 35% target needs 20.00×, a 39% target needs 100×, and a 40% target cannot be reached at any ROAS. The product cannot deliver that profit at that price, and the calculator shows a dash.
Google Ads takes a target ROAS as a percentage: conversion value per unit of spend × 100. A 3.33× target is entered as 333%. Target ROAS bidding is available on Shopping and Performance Max campaigns, among other types.
Compare like with like. Every figure here excludes VAT; if the conversion value you send Google includes VAT, your account’s ROAS is inflated by the tax rate. Either send values excluding VAT or scale the target up: as an example, 3.33× at 20% VAT becomes 4.00×, entered as 400%.
Why one account-level target cannot fit a catalogue
One target ROAS across a catalogue is a compromise between every margin inside it, so it is too loose for some products and too strict for others. As an example, a 3.00× target sits 0.78 above break-even for a 45%-margin product and 0.33 below it for a 30%-margin one: if each delivered exactly 3.00×, the same setting would fund profit on the first and a loss on the second.
A campaign can meet its target on average while products inside it run below their own break-even.
- Compute the returns-adjusted margin for every product you advertise.
- Sort by it and cut the list into a few margin bands, for example above 45%, 35–45% and below 35%.
- Give each band its own campaign so each can carry its own target. Basing that target on the lowest margin in the band is the cautious choice, but Google aims for the target on average, so keep checking the products inside it individually.
- Where your campaign structure does not allow grouping, at least list which products sit below their own break-even inside a campaign that looks fine overall.
- Recalculate whenever a price, cost or return rate changes, because each one moves the margin the target was built on.
The POAS shortcut: break-even is 1.00× for every product
POAS (profit on ad spend) is revenue minus cost of goods, divided by ad spend, and its break-even is 1.00× for every product in every catalogue. There is no per-product target to derive, because the margin is already inside the number.
POAS equals ROAS multiplied by the share of revenue its numerator keeps, so it crosses 1.00× at the break-even ROAS worked out from that same margin. If the numerator leaves out costs your adjusted margin includes, such as payment fees, the 1.00× line sits below your true break-even. As an example, at a 3.00× ROAS a 40%-margin product has a POAS of 1.20× and makes money, while a 25%-margin product has 0.75× and loses it: the same ROAS, opposite verdicts.
A POAS is only as complete as its cost figure. Costs left out of the numerator are not covered by the 1.00× line, so add the freight, packaging and shipping you bear to the unit cost if you want them counted. Payment fees are not covered unless you build them into the cost figure.
In Opteno’s default settings, revenue is gross sales minus refunds, and cost of goods comes from each sold variant’s Shopify cost-per-item or a store-wide percentage you set. POAS sits beside ROAS and net profit on the product row, marked against its 1.00× break-even, over rolling 7, 14 and 30-day windows with variant, country and market breakdowns. A sold variant with no cost shows as unavailable, with the reason, rather than as a guess. If your prices include VAT, check whether the revenue you are comparing includes it before reading it against a break-even worked out without it.
Work it out with the free calculator
opteno.app/tools/break-even-roas-calculator
The calculator applies the formulas on this page to one product. Enter the selling price excluding VAT, product cost, shipping cost, transaction fee percentage, return rate and target net margin. It prints your break-even ROAS, your target ROAS and your contribution per order, with the formulas shown underneath. The arithmetic runs in your browser: the calculator makes no request of its own and asks for no email address. The site's usual analytics, described in the cookie policy, apply here as on any other page. The two ROAS results are ratios, so any currency works as long as every money field uses the same one. Contribution per order comes out in that currency.
Frequently asked questions
What ROAS do I need to break even?
One divided by your returns-adjusted margin. At 50% you need 2.00×, at 40% 2.50×, at 30% 3.33× and at 25% 4.00×. Work the margin out per product from the price excluding VAT, after unit cost, the shipping you bear, payment fees and returns.
What is a good ROAS?
There is no universal figure: a good ROAS is one above that product’s break-even. A 3.00× ROAS is profitable on a product with a 40% adjusted margin (break-even 2.50×) and loses money on one with 25% (break-even 4.00×).
What is the difference between break-even ROAS and target ROAS?
Break-even ROAS leaves zero profit after the goods, the other costs of the sale and the ad. Target ROAS adds the profit you want to keep: 1 ÷ (adjusted margin − target net margin). At a 40% margin they are 2.50× and, to keep 10% of revenue, 3.33×.
How do I enter a break-even or target ROAS in Google Ads?
Google Ads takes target ROAS as a percentage, conversion value per unit of spend × 100, so 2.50× is 250% and 3.33× is 333%. If the conversion value you send includes VAT, scale the target up by the tax rate first: at 20% VAT, 3.33× becomes 4.00×, entered as 400%.
Should break-even ROAS include VAT and returns?
Exclude VAT and include returns. VAT was never your revenue: a €49.95 price at 20% VAT is €41.63 of revenue. Returns reduce what a sale leaves behind. The simple method multiplies the contribution by one minus the product’s return rate. That assumes a returned unit is resold, so if returns are written off, also take off return rate × (unit cost + shipping + fee) ÷ price.
Why does the calculator show a dash instead of a target ROAS?
The target net margin is equal to or above the adjusted margin, so no ROAS can deliver it; near the margin the required ROAS rises without limit (at 40% margin, a 39% target needs 100×). A dash for break-even ROAS means the product has no positive margin at all.
See which products are losing you money
Connect Shopify and Google Ads in under five minutes. From $14.99 a month, cancel whenever you want, and no change to your store or your campaigns without your approval.