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Break-even ROAS: the formula, a worked example and why platform ROAS misleads.
How to calculate break-even ROAS from your margin, with a worked example, the Amazon ACOS version including UK VAT, and how to check a platform's reported ROAS before scaling spend.
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Break-even ROAS is the return on ad spend at which an ad-driven sale makes no profit and no loss. The formula is break-even ROAS = 1 ÷ margin before ad spend. With a 40% margin after product, shipping and fees, you need a ROAS of 2.5 to break even. Below that, every ad-driven order loses money.
That one number tells you whether a “4x ROAS” in an ad dashboard is good news or a slow leak. Here is how to calculate it, a worked example, the Amazon version, and how to check a platform’s figure before you scale spend.
What is ROAS?
Return on ad spend is ad revenue divided by ad spend. Amazon Ads gives the formula as ROAS = ad revenue ÷ ad spend. Google uses the same idea in its Target ROAS bidding: £5 of sales for every £1 of ad spend is a 500% (5x) ROAS.
The catch is in the first word of the formula: revenue. ROAS tells you how much was sold, not how much you kept.
What is a good ROAS?
There is no universal number. A good ROAS is one comfortably above your own break-even ROAS, and that depends on your margins. A brand with 60% margins breaks even at 1.67, so it can profit at a ROAS of 3. A brand with 25% margins breaks even at 4.0, so the same ROAS of 3 loses money on every ad-driven order. Work out your break-even first, then set a target above it.
What is the break-even ROAS formula?
Two steps:
- Margin before ad spend = (revenue − variable costs) ÷ revenue
- Break-even ROAS = 1 ÷ margin before ad spend
Shopify’s guide sets it out the same way. Its example is a $100 product with $60 of variable costs, which gives a 40% margin and a break-even ROAS of 2.5.
Variable costs are the costs that come with each order:
- cost of goods sold
- shipping and packaging
- pick and pack or 3PL fees
- payment processing fees
- marketplace fees, where you sell on a marketplace
- a realistic allowance for returns and refunds
Shopify notes that fixed costs such as rent and salaries are usually left out of break-even ROAS. They still have to be paid, which is why your target should sit above break-even, not on it.
Use one basis throughout. If revenue excludes VAT, costs should too.
What break-even ROAS do I need at my margin?
| Margin before ad spend | Break-even ROAS | Break-even ACOS |
|---|---|---|
| 20% | 5.00 | 20% |
| 25% | 4.00 | 25% |
| 30% | 3.33 | 30% |
| 35% | 2.86 | 35% |
| 40% | 2.50 | 40% |
| 50% | 2.00 | 50% |
| 60% | 1.67 | 60% |
| 70% | 1.43 | 70% |
This is arithmetic, not a benchmark. Low-margin products need much higher ROAS to stay above water, which is why a single account-wide ROAS target can hide products that lose money.
How do I calculate break-even ROAS? A worked example
Illustrative numbers only. This is not client data.
A brand sells through its own store. Average order value is £60 after discounts, excluding VAT.
| Cost per order | £ |
|---|---|
| Product cost (COGS) | 18.00 |
| Shipping and packaging | 6.00 |
| Pick and pack | 2.00 |
| Payment processing | 1.50 |
| Returns allowance | 2.50 |
| Total variable costs | 30.00 |
- Margin before ad spend = (£60 − £30) ÷ £60 = 50%
- Break-even ROAS = 1 ÷ 0.50 = 2.0
Every £1 of ad spend has to bring in at least £2 of revenue just to cover itself.
What a discount does to break-even
Now run a 20% promotion. The order value falls to £48. Keeping costs the same for simplicity:
- Margin = (£48 − £30) ÷ £48 = 37.5%
- Break-even ROAS = 1 ÷ 0.375 = 2.67
A campaign running at 2.3x was profitable before the sale; at the discounted price it loses money. Recalculate break-even before a promotional period, not after.
Why does my ad platform show 4x when my margins say I’m barely breaking even?
There are three common reasons.
1. ROAS counts revenue, not profit. A 4x ROAS on a 25% margin product is exactly break-even (see the table). The dashboard can look healthy while the business makes nothing.
2. More than one platform claims the same sale. As Shopify explains, if a customer clicks a Facebook ad and later buys through a Google search, both platforms may report that sale. Add up every platform’s attributed revenue and it can exceed what the store actually took.
3. Reporting lags and moves. Google advises excluding the most recent conversion delay period when judging ROAS, because some conversions arrive days after the click. Yesterday’s ROAS will change.
Here is how the gap plays out. Illustrative numbers, same 50% margin as above:
| Scenario | Ad spend | Revenue | Contribution after variable costs | Profit after ads |
|---|---|---|---|---|
| Platform view: 4.0x ROAS | £1,000 | £4,000 | £2,000 | £1,000 |
| Store view: 2.4x on orders the store can tie to ads | £1,000 | £2,400 | £1,200 | £200 |
| Same 2.4x, but margin 30% | £1,000 | £2,400 | £720 | −£280 |
The platform figure isn’t necessarily wrong. It answers a different question. The decision to scale spend should rest on the store’s numbers and your margin.
How do I check ROAS before scaling spend?
- Work out break-even per product or category, not just for the account. Margins vary, and so should targets.
- Use your store or Seller Central as the record of sales. Shopify describes its own marketing reports as a single source of truth for this reason.
- Compare total revenue with total ad spend across all channels for the same period. If every platform reports a strong ROAS but the total doesn’t move, some of the credit is shared.
- Recalculate for promotions, using the discounted price.
- Set a target above break-even that leaves room for fixed costs and profit. Google says to set Target ROAS from your business goals, using historical ROAS as a reference.
- Give it data and time. Google recommends reporting conversion values for four weeks or one to two conversion cycles, whichever is longer, before setting a Target ROAS. It also says that after a target change the bidder reacts immediately but needs time to hit the new target, and suggests giving it one to two conversion cycles.
Does break-even ROAS work for Amazon sellers?
Yes. Amazon reports ACOS more often than ROAS, but they are the same measure turned over. Amazon Ads defines ACOS as ad spend ÷ ad revenue × 100, and says that to stay profitable, ACOS needs to be lower than your profit margin. So break-even ACOS = margin before ad spend.
On Amazon, marketplace fees are a large part of variable costs. Amazon UK charges a referral fee on each item, which depends on the category, and says most referral fees are between 8% and 15%. FBA sellers also pay fulfilment and storage fees.
Amazon UK charges referral fees on the VAT-inclusive price. Amazon’s pricing page says the fee is a percentage of the total amount paid by the buyer, and its European Business Solutions Agreement defines the fee base to include “any taxes and customs duties”. For a VAT-registered seller, that means VAT has to come off the price before you work out the margin, while the referral fee is still taken on the full price.
Illustrative numbers only, for a VAT-registered seller with costs shown excluding VAT. Check your own category’s fees in Seller Central.
| Per unit | £ |
|---|---|
| Selling price (including VAT) | 25.00 |
| VAT at 20% (included in the £25 price) | 4.17 |
| Revenue excluding VAT | 20.83 |
| Referral fee (15% of the £25 VAT-inclusive price) | 3.75 |
| FBA fulfilment fee (illustrative) | 3.50 |
| Product cost | 7.00 |
| Inbound shipping and storage allowance | 1.00 |
| Contribution before ad spend | 5.58 |
The arithmetic:
- VAT inside a 20% VAT-inclusive price = £25 ÷ 6 = £4.17, leaving £20.83
- Contribution = £20.83 − £3.75 − £3.50 − £7.00 − £1.00 = £5.58
- Margin before ad spend, excluding VAT = £5.58 ÷ £20.83 = about 27%
- Break-even ROAS = 1 ÷ 0.268 = about 3.7, so break-even ACOS is about 27%
If you measure ad sales including VAT, use the gross price as the base instead: £5.58 ÷ £25 = about 22%, so break-even ACOS is about 22% and break-even ROAS about 4.5. Check which basis your ad report uses and stick to it.
Leave VAT out and the same product appears to have a 39% margin and a break-even ACOS of 39%, which overstates the room for ad spend by more than ten percentage points.
A campaign at 30% ACOS on this product loses money on every ad-driven sale on either basis, whatever the sales chart says. It may still be a deliberate choice for a launch, or to win ranking, but it should be a choice with an end date.
Where does Odla fit?
Odla’s performance marketing team connects paid search, paid social, email and affiliate activity to the revenue and margin the business has agreed, and treats platform-reported conversions as a diagnostic, not the final measure. If your measurement setup can’t tell you which sales the ads actually drove, start with analytics and optimisation. For Amazon accounts, see Amazon marketplace management.
New to the discipline? Read what is performance marketing.
Common questions.
What is the break-even ROAS formula?
Break-even ROAS = 1 ÷ margin before ad spend. The margin is revenue minus all variable costs per order (product cost, shipping, packing, payment fees, returns), divided by revenue. A 40% margin gives a break-even ROAS of 2.5.
What is a good ROAS for e-commerce?
There is no universal number. A good ROAS is one comfortably above your own break-even ROAS, which depends on your margins. A brand with 60% margins can profit at a ROAS that would lose money for a brand with 25% margins.
Why does my ad platform show a higher ROAS than my profit suggests?
Ad platforms report revenue, not profit, and each platform credits the sales it can attribute to its own ads. When a customer touches more than one channel, more than one platform can claim the same sale. Check platform ROAS against orders in your store or Seller Central and against your margin.
What is break-even ACOS on Amazon?
Amazon Ads defines ACOS as ad spend divided by ad revenue, the inverse of ROAS. Break-even ACOS equals your margin before ad spend: with a 30% margin, an ACOS above 30% loses money on those sales.
Should fixed costs go into break-even ROAS?
Usually not. Break-even ROAS uses variable costs per order. Fixed costs such as rent and salaries are covered by the profit left after ads, so your target ROAS should sit above break-even to pay for them.