ROAS, return on ad spend, is revenue divided by ad spend. Ad platforms love it because it is easy to show. The trouble is that a "good" ROAS means nothing until you know what you need to break even.
How to work out breakeven ROAS
Take an average order and subtract everything except advertising:
- The cost of the products.
- Delivery and packing.
- Payment fees.
- VAT, if your revenue figures include it.
What is left is your profit per order before ads. Then:
Breakeven ROAS = average order value ÷ profit per order before ads
So if your average order is £60 and you keep £25 before ads, your breakeven ROAS is 2.4x. Below that, every sale from ads loses money. Above it, you make some.
Why it changes everything
Once you know your number, decisions get simpler:
- Campaign targets. Set your target ROAS above breakeven by the profit you want to keep.
- Which products to advertise. Low-margin products have a higher breakeven ROAS. Some should not be advertised at all.
- Discounts. A 20% discount can push your breakeven ROAS up sharply, which is why sale periods often look busy but make little money.
Use the free calculator
I built a free ROAS and breakeven ROAS calculator that does the maths for you, including VAT and payment fees. Put in your average order, costs and ad spend and it shows your breakeven ROAS, the target for your profit goal and whether your ads are making money.
If the numbers are uncomfortable, that is useful too. It usually means the fix is in pricing, product choice or tracking rather than in the ads themselves.