How to calculate break-even ROAS
Break-even ROAS is 1 divided by your contribution margin. If an order leaves 45.6% behind after goods, postage and fees, your break-even return on ad spend is 1 ÷ 0.456 = 2.19: every pound of advertising has to bring back £2.19 of revenue simply to avoid losing money. A campaign at 2.50 is making you £84 on £600 of spend; the same campaign at 1.92 is losing you £75. This page builds the contribution margin the whole thing rests on, works both cases, and shows the three situations where the number quietly lies to you.
ROAS, and the one line that makes it useful
Return on ad spend is the simplest ratio in advertising:
ROAS = revenue attributed to the advertising ÷ the advertising spend
Spend £600 and get £1,500 of orders back and your ROAS is 2.50, usually written as 2.5x. On its own that number is not an answer, because it is measured in revenue and revenue is not yours. Most of every order goes straight back out to whoever made the goods, whoever carried the parcel and whoever processed the payment.
The figure that turns ROAS into something decidable is the point at which the advertising exactly pays for itself:
Break-even ROAS = 1 ÷ contribution margin
The logic is one step. If 45.6p of every pound of revenue survives as contribution, then to recover £1 of ad spend you need £1 ÷ 0.456 = £2.19 of revenue. Below that the advertising costs more than the orders leave behind; above it, the surplus is yours.
Everything therefore depends on the contribution margin, and that is where the work actually is.
Building the contribution margin it depends on
Contribution is the order value less every cost that exists only because the order happened. Using Kestrel and Fern, the invented candle maker from the acquisition cost guide:
| Line | What it covers | Amount |
|---|---|---|
| Average order value | what the customer pays, including delivery charged | £48.00 |
| Cost of goods | wax, wick, vessel, label | −£16.40 |
| Pick, pack and postage | box, filler, label, carrier | −£5.60 |
| Platform and payment fees | −£4.10 | |
| Contribution | £48.00 − £26.10 | £21.90 |
As a percentage that is £21.90 ÷ £48.00 = 45.625%, and so:
Break-even ROAS = 1 ÷ 0.45625 = 2.19
Two cautions about the inputs, because both are routinely got wrong and both move the answer a long way.
First, the advertising itself is not in the table, and must not be. Break-even ROAS is the test you apply to the advertising; putting the ad spend inside the margin would be testing it against itself.
Second, overheads are not in the table either. Rent, software, insurance and your own wages sit outside contribution, which means break-even ROAS is the point where advertising stops losing money, not the point where the business makes any. A shop running exactly at its break-even ROAS has paid for its goods, its postage and its adverts, and has nothing whatever towards anything else. The target section below is how you put that right.
Notice, too, how sensitive the answer is. A margin of 50% gives a break-even ROAS of 2.00; 40% gives 2.50; 30% gives 3.33. Get the margin wrong by five points and the target you are managing your advertising against is wrong by a quarter.
Two campaigns, one above the line and one below
Both campaigns spend the same £600. The only difference is the revenue they bring back.
| Line | Campaign A | Campaign B |
|---|---|---|
| Ad spend | £600.00 | £600.00 |
| Revenue attributed | £1,500.00 | £1,150.00 |
| ROAS | 2.50 | 1.92 |
| Contribution at 45.625% | £684.38 | £524.69 |
| Profit after ad spend | +£84.38 | −£75.31 |
Campaign B produced £1,150 of sales, which on any dashboard is a good month, and destroyed £75.31. There is no volume at which it improves: doubling the spend to £1,200 at the same efficiency doubles the loss to £150.62. This is the single most useful thing break-even ROAS does — it separates campaigns that get better with scale from campaigns that get worse, and revenue alone cannot tell them apart.
It is also worth seeing how little headroom Campaign A has. At 2.50 against a break-even of 2.19 it keeps £84.38, which is 5.6% of the revenue it generated. A 12% rise in the cost of clicks, or a £2 rise in postage, erases it entirely.
Target ROAS, when you want a profit rather than a survival
Break-even is a floor, not a goal. To leave a stated share of the advertising-driven revenue as profit, widen the formula:
Target ROAS = 1 ÷ (contribution margin − profit you want)
To keep 10% of ad-driven revenue at a 45.625% contribution margin: 1 ÷ (0.45625 − 0.10) = 1 ÷ 0.35625 = 2.81. Across a range of ambitions:
| Profit wanted on ad-driven revenue | Divide 1 by | Target ROAS | Profit on £1,500 of revenue |
|---|---|---|---|
| 0% (break-even) | 0.45625 | 2.19 | £0 |
| 5% | 0.40625 | 2.46 | £75 |
| 10% | 0.35625 | 2.81 | £150 |
| 15% | 0.30625 | 3.27 | £225 |
| 20% | 0.25625 | 3.90 | £300 |
Read the jump from 2.19 to 3.90 carefully. Asking advertising to deliver a fifth of its revenue as profit requires it to work nearly twice as hard as merely breaking even. That is why shops with thin margins so rarely make paid advertising pay: at a 30% contribution margin, break-even alone is 3.33 and a 10% profit needs 5.00, which very few campaigns reach anywhere.
The other lever is the margin itself, and it is usually the stronger one. Lifting contribution from 45.625% to 55% by raising the price or cutting the cost of goods drops break-even ROAS from 2.19 to 1.82 — the same adverts, the same clicks, suddenly profitable. What the platforms deduct before you ever see the money is worked out in the guides for Etsy, Shopify and Amazon FBA, and the pricing side is in margin versus markup.
Three things that move the real break-even point
The 2.19 assumes every order sticks, every customer is new, and the reported revenue is true. All three assumptions bend.
Returns
A returned order gives back the revenue but not all of the cost. Suppose 6% of orders come back, the goods are resaleable, and the carriage out and back plus the handling is lost — call it £9.20 an order in this example. Across 100 orders:
| Line | Working | Amount |
|---|---|---|
| Contribution on 94 kept orders | 94 × £21.90 | £2,058.60 |
| Loss on 6 returned orders | 6 × £9.20 | −£55.20 |
| Contribution per order attempted | £2,003.40 ÷ 100 | £20.03 |
The effective margin falls to £20.03 ÷ £48.00 = 41.74%, and break-even ROAS rises from 2.19 to 2.40. A campaign sitting at 2.30 looked profitable and was not.
Repeat purchase
If advertising buys customers rather than orders, the first order is not the whole return. A customer worth £175.10 of contribution against a £48.00 first order is worth 3.65 first orders over the relationship, so the break-even ROAS measured on the first order falls to 2.19 ÷ 3.65 = 0.60. That is a genuine and enormous difference — and it is only real if the repeat orders actually happen, and only affordable if you can fund the gap, which is the payback arithmetic in lifetime value. Using a lifetime break-even on a shop whose customers mostly buy once is the fastest way to overspend there is.
Attribution
The revenue in the numerator is whatever the advertising platform claims. If a share of those buyers would have found you anyway, the true ROAS is lower than the reported one. Nothing in the arithmetic can correct for it; the only honest test is to change spend deliberately and watch total orders rather than attributed ones.
What break-even ROAS cannot tell you
Break-even ROAS is one division applied to one number you had to estimate. It is a useful floor and a poor master.
- It cannot tell you whether the revenue was caused by the advert. Every figure rests on attribution supplied by the party being paid. Two platforms will each claim the same order and the totals will exceed your real sales.
- It says nothing about overheads. Clearing break-even ROAS means the advertising paid for itself and the goods. Rent, software, insurance and wages are all still outstanding, and a shop that runs every campaign at exactly break-even goes out of business slowly while its adverts look fine.
- It is a single average across different products. One margin for a catalogue with a range of margins will overstate the floor on the good lines and understate it on the thin ones, quietly pushing spend towards the products you would least want to promote. Where volumes allow, calculate it per product group.
- It does not know your capacity. A campaign well above break-even is still a bad idea if it sells stock you cannot replace before the next delivery. That constraint is when to reorder, not ROAS.
- It cannot see the direction of travel. The measure is a snapshot. Acquisition costs tend to rise as spend rises into the same audience, so a campaign comfortably above break-even at £600 a month may be under it at £2,000, and only stepping the budget up and re-measuring will find out.
- It is only as good as the margin behind it. Every number here moves if the cost of goods, the postage or the platform fees move. Recalculate whenever a supplier price or a fee schedule changes, because the target does not update itself.
Arithmetic and general information only — not financial, tax, legal or investment advice. Your own figures, and your own accountant, decide what any of this means for you.
Do the quick version free
free break-even calculator — enter your price and variable cost per sale and it returns the contribution margin, which is the only input break-even ROAS needs. It runs in your browser and nothing you type is sent anywhere.
See inside the toolkit first
The Business Sale Readiness Toolkit sample shows every sheet, every row of the inputs sheet and the actual Excel formulas — no email, no account. If the sample is not worth your afternoon, the full workbook will not be either.
The tool for this job
The Small Business CFO Operating System ($39) is a working spreadsheet that tracks what each sale actually leaves behind after every cost, so the margin your advertising targets are set from is a measured figure rather than an assumed one. One-time purchase, instant download.
Frequently asked questions
What is break-even ROAS?
It is the return on ad spend at which the advertising exactly pays for itself, and it equals 1 divided by your contribution margin. At a 45.625% contribution margin the break-even ROAS is 2.19, meaning every pound of advertising must return £2.19 of revenue before it adds anything at all.
How do I calculate break-even ROAS?
Work out contribution per order first: the order value less cost of goods, fulfilment, and platform and payment fees. On a £48.00 order with £26.10 of those costs, contribution is £21.90, or 45.625%. Break-even ROAS is then 1 ÷ 0.45625 = 2.19. Do not include the ad spend itself in the margin, or you are testing the advertising against itself.
What ROAS do I need to actually make a profit?
Use target ROAS = 1 ÷ (contribution margin − the profit share you want). At a 45.625% margin, keeping 10% of ad-driven revenue as profit needs 1 ÷ 0.35625 = 2.81, and keeping 20% needs 3.90. Break-even ROAS leaves nothing towards rent, software, insurance or wages, since those sit outside contribution entirely.
Do returns change break-even ROAS?
Yes, and usually by more than people expect. If 6% of orders come back and each costs £9.20 in unrecovered carriage and handling, contribution per order attempted falls from £21.90 to £20.03, the effective margin drops to 41.74%, and break-even ROAS rises from 2.19 to 2.40. A campaign running at 2.30 would look profitable and would not be.
Can I run below break-even ROAS if customers come back?
Only if the repeat purchases are real and you can fund the wait. A customer worth £175.10 of contribution against a £48.00 first order is worth 3.65 first orders, which pulls the first-order break-even down to about 0.60. That is a large allowance resting on a forecast, so it is worth checking against your own measured repeat rate before spending against it.