- Break-even ROAS = 1 ÷ gross margin (as a decimal).
- A 40% margin breaks even at a ROAS of 2.5. A 25% margin needs 4.0.
- Use the margin after product cost, shipping, payment fees and typical discounts.
- Reported ROAS is only meaningful if the revenue behind it reconciles with real orders.
What is ROAS?
ROAS, or return on ad spend, is revenue divided by ad spend. If you spend $1,000 and the ads bring in $4,000 of revenue, your ROAS is 4.0 (sometimes written 400%).
ROAS measures revenue, not profit. A high ROAS on low-margin products can still lose money, which is why you need your break-even point.
How do you calculate break-even ROAS?
Divide 1 by your gross margin, written as a decimal.
Break-even ROAS = 1 ÷ gross margin
| Gross margin | Break-even ROAS |
|---|---|
| 60% | 1.67 |
| 50% | 2.0 |
| 40% | 2.5 |
| 30% | 3.33 |
| 25% | 4.0 |
| 20% | 5.0 |
Worked example: a product sells for $100 (excluding GST). Product cost, shipping, payment fees and packaging come to $60, leaving $40 gross margin, or 40%. Break-even ROAS is 1 ÷ 0.40 = 2.5. At a ROAS of 2.5, every $100 of ad-driven revenue cost $40 in ads, which uses up the entire $40 margin.
Which costs belong in the margin?
Use everything you pay to deliver a typical order, not just the product cost:
- product or cost of goods
- shipping you pay and don’t recover
- payment and platform fees
- packaging
- average discounts and the cost of returns
Use revenue excluding GST, and make sure your ad platforms report revenue the same way. If Google receives revenue including GST but your margin is calculated excluding it, your ROAS will look about 15% better than it really is in New Zealand.
What ROAS should you aim for?
Break-even is the floor, not the goal. Your target depends on what you want ads to do:
- Profit on the first order: aim comfortably above break-even to cover overheads and leave profit.
- Growth or new customers: you may accept a ROAS near break-even on first orders if customers reliably buy again. That only works if you know your repeat-purchase rate.
- Different products: margins differ by product, so one ROAS target for the whole store can overspend on low-margin lines. Grouping campaigns by margin helps.
Why might a “good” ROAS still lose money?
- The revenue behind it is inflated by double-counted or GST-inclusive conversions.
- It’s Meta and Google added together, with the same sales counted twice.
- It includes orders that would have happened anyway, such as people searching your brand name.
- It ignores refunds and returns.
Break-even ROAS is only useful if the revenue it’s compared with is real. That’s why we reconcile ad revenue with store orders before setting targets.
Platform settings and defaults change often. This guide reflects Google Ads, Meta and Shopify as at 14 November 2026. For the short version, see the related FAQ answer.
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