Break-even ROAS
Also called breakeven ROAS, minimum ROAS.
The ROAS at which ad revenue exactly covers the ad spend and the cost of the goods sold: 1 ÷ gross margin.
Break-even ROAS = 1 ÷ gross margin, with the margin as a decimal. Gross margin is what is left of the price after the cost of the product, shipping and payment fees.
| Gross margin | Break-even ROAS |
|---|---|
| 25% | 4.0 |
| 40% | 2.5 |
| 60% | 1.67 |
| 75% | 1.33 |
Example: a $100 product that costs $60 to make, ship and take payment for has a 40 percent margin. Ads must bring at least $2.50 of revenue for each $1 spent to break even on the first order.
Running below break-even can still pay when customers buy again: an ad that brings a buyer worth three orders a year earns its cost back over the year, not on day one. Use your real repeat rate and lifetime value, not a hoped-for one. Compare break-even with blended ROAS, which counts each sale once. See ROAS, blended ROAS and MER.
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