How to calculate break-even ROAS
Take what one order leaves you before ads: the price minus product cost, shipping, packaging, apps and payment fees. Break-even ROAS is the price divided by that amount. Below it, every ad dollar costs more than it brings back.
Example: a product sells for $39. It costs $9, shipping is $5, packaging and apps add $1, and payment fees take 3% ($1.17). That is $16.17 in costs, so each order leaves $22.83. Break-even ROAS is 39 ÷ 22.83 = 1.71, and the most you can pay in ads for one order is $22.83.
Why cash on delivery needs two ROAS numbers
Ads Manager counts a purchase when the order form is sent. With cash on delivery that is not money yet: some orders never confirm, some parcels are refused at the door, and a refused parcel still costs its return fee.
Take the same $39 product with 100 orders placed, a 70% confirmation rate and an 80% delivery rate: 70 orders ship, 56 are paid and 14 come back. The 56 paid orders bring $2,184. Product, shipping, packaging and return fees cost $819, which leaves $1,365 to spend on ads. On the cash you collect, break-even ROAS is 2,184 ÷ 1,365 = 1.60.
Ads Manager values all 100 orders at $39, or $3,900, so it must show at least 3,900 ÷ 1,365 = 2.86 for you to break even. A campaign that shows 2.5 in Ads Manager looks profitable and is losing money.
Break-even ROAS by profit margin
Your margin before ads decides the line. The thinner the margin, the more each sale has to bring back.
| Margin before ads | Break-even ROAS | Most you can spend on ads per $100 of sales |
|---|---|---|
| 20% | 5.00 | $20 |
| 25% | 4.00 | $25 |
| 30% | 3.33 | $30 |
| 40% | 2.50 | $40 |
| 50% | 2.00 | $50 |
| 60% | 1.67 | $60 |
| 75% | 1.33 | $75 |
Break-even ROAS vs target ROAS
Break-even ROAS is where profit is zero. Target ROAS keeps the profit you want after ads. To keep 15% of revenue on the prepaid example above, set $5.85 aside from each $39 order. That leaves $16.98 for ads, so the target is 39 ÷ 16.98 = 2.30.
Use break-even ROAS to decide when to stop a campaign, and target ROAS to decide when to scale it.
Break-even CPA: the same line per order
Break-even CPA is the most you can pay in ads for one order. It is the same line as break-even ROAS, read in money instead of a ratio. Ads Manager reports cost per purchase, so compare it with your break-even CPA per order placed.
With cash on delivery the calculator also shows the most you can pay per delivered order: $24.38 in the example above, against $13.65 per order placed.
Mistakes that make the number lie
- Reading Ads Manager ROAS as cash on COD orders: it counts orders that never pay.
- Leaving out return fees: on cash on delivery every refused parcel costs money.
- Forgetting payment and app fees: 3% of the price moves the line more than it seems.
- Entering a price with VAT when you pay that VAT to the state: use the price you keep.
- Judging a campaign on two days of data: wait until it has enough orders to be read.