How do I calculate break-even ROAS?

Take your gross margin as a decimal and divide one by it. A margin of 0.4 gives a break-even return of 2.5. A margin of 0.25 gives 4. A margin of 0.6 gives about 1.67.

That is the point at which the gross profit on the orders exactly equals the ad spend that produced them. Above it, ads contribute something towards the rest of the business. Below it, every order costs you money to win.

The mistake is almost never in the division. It is in the margin. Most stores use the margin they quote to suppliers or the one in a spreadsheet from two years ago, and it is too generous.

The margin that belongs in this calculation is the money left after every cost that moves with an order. Not overheads, not rent, not salaries, and not fixed software. Those are paid from what is left, and they are the reason your target should sit above break-even rather than at it.

Work it out on your actual order mix, not on your best product. If your traffic buys the cheaper end of the range, the blended margin on what actually sells is what matters.

Do it once properly and the number will surprise you often enough to be worth the hour it takes.

Start with the selling price, after any discount actually given, and take out the following.

Cost of goods, landed. The unit price plus freight, duty and any import charges, divided across the units.

Payment processing. A percentage plus a fixed amount per transaction, which hurts small orders more than large ones.

Packing and materials. The box, the filler, the label, the insert, and the labour if you pay per order to a fulfilment partner.

Outbound shipping you actually pay, minus any shipping fee you charge. If you offer free delivery, this is one of your largest variable costs and it belongs here in full.

Returns. Expected refunds at your own rate, plus the cost of the return journey and any item that cannot be resold. Stores that ignore this consistently overstate margin, especially in apparel.

Per order app or platform fees, marketplace commissions where relevant, and any gift wrapping or personalisation cost.

What is left divided by the selling price is your gross margin for this purpose. Do it for your top selling products and blend them by volume, because a margin averaged across the catalogue is dragged around by items nobody buys.

Break-even is not a goal. Running at it means ads pay for themselves and nothing else, while the store still has rent, salaries, tools and the money you were hoping to keep.

So add the layer. Decide what share of gross profit ads are allowed to consume, then work the target return from that. If ads may take half of gross profit, the target is twice the break-even. If they may take a quarter, four times.

That decision belongs to the business, not to the ad account, and it usually depends on the stage. A store investing to grow accepts a lower target and funds the gap from cash or from repeat revenue. A store paying for itself sets a higher one.

Then add a margin for what the platform cannot see. Reported returns include some orders that would have happened anyway and exclude some it never saw. Neither error is small, so a target set exactly at your calculated number will produce disappointment in one direction or the other.

Finally, sanity check the target against the auction. If the target return implies a cost per click far below what your category costs, the campaign will simply not spend, and you have discovered something important before wasting a month finding out.

One store-wide figure is a starting point. Real decisions need it broken down, because margin varies enormously inside most catalogues.

By product group. A high margin own-brand line and a low margin stocked brand have completely different break-even points, and one target applied to both will overspend on one and starve the other.

By discount level. Every promotion lowers the margin and raises the break-even for the period it runs. A sale at a deep discount can push a campaign that looked profitable below the line without a single setting changing.

By season. Shipping surcharges in peak weeks, higher return rates after a gift period, and clearance pricing afterwards all move the figure.

By customer type. If you are willing to accept less on a first order because customers reliably come back, calculate a separate break-even for new customers based on what a customer is worth over their first year, and use the strict figure for repeat purchases.

Keep the calculation somewhere everyone can see, with the inputs visible. When a cost changes, the target changes, and the most common way stores drift into unprofitable advertising is that a landed cost went up and nobody updated the number the ads were being judged against.