Break-even ROAS and target MER: the formulas, with a margin table
Break-even ROAS is 1 ÷ margin; target MER adds fixed costs and profit. Formulas, a lookup table by margin and worked examples you can copy.
On this page
Break-even ROAS is 1 divided by your gross margin: at a 40 percent margin, ads must bring $2.50 in sales for every $1 spent before they stop losing money. Target MER (marketing efficiency ratio) is the same idea for the whole business: total revenue ÷ total marketing spend, set high enough to cover your fixed costs and leave the profit you want.
The calculators that rank for this phrase stop at the first formula. This page gives both formulas, a table you can read your number from, and the three adjustments that change the answer: variable costs, fixed costs and repeat purchases.
The two formulas
| Number | Formula | Answers |
|---|---|---|
| Break-even ROAS | 1 ÷ contribution margin | Does this order pay for its own ads? |
| Target MER | 1 ÷ (contribution margin − fixed cost share − profit share) | Does the business make the profit we planned? |
Margins are decimals: 40 percent is 0.40. Contribution margin is what is left of each sale after every cost that grows with it: the product, shipping, packaging, payment fees and an allowance for returns. Use it instead of gross margin when those costs are large. The shortcut on most calculators uses gross margin alone, which sets the bar too low.
Both numbers are read against revenue from your store or payment system, counted once. A platform's own ROAS counts sales other channels share, so it overstates against these targets. See ROAS, blended ROAS and MER.
The table
Find your contribution margin on the left. The first column is the break-even point with no fixed costs. The next two are the MER you need for 10 or 20 percent of revenue left as profit, before fixed costs.
| Contribution margin | Break-even ROAS | MER for 10% profit | MER for 20% profit |
|---|---|---|---|
| 30% | 3.33 | 5.00 | 10.00 |
| 40% | 2.50 | 3.33 | 5.00 |
| 50% | 2.00 | 2.50 | 3.33 |
| 60% | 1.67 | 2.00 | 2.50 |
| 70% | 1.43 | 1.67 | 2.00 |
Read across a row and the cost of ambition is plain: at a 40 percent margin, going from 10 to 20 percent profit means getting 50 percent more revenue out of every marketing dollar. At a 30 percent margin, a 20 percent profit target needs an MER of 10: $10 of sales for every marketing dollar. Thin margins are a pricing problem before they are an ads problem.
Some tools show the same ratio the other way round, as marketing spend as a share of revenue. An MER of 4 is 25 percent; an MER of 2.5 is 40 percent. Check which way a benchmark is written before comparing.
Worked example: from margin to a spend ceiling
Example numbers, made up for illustration. A store sells a $80 product.
| Per order | Amount |
|---|---|
| Price | $80.00 |
| Product cost | −$24.00 |
| Shipping and packaging | −$9.00 |
| Payment fees (about 3%) | −$2.40 |
| Returns allowance (5% of price) | −$4.00 |
| Contribution | $40.60 |
Contribution margin = $40.60 ÷ $80 = 50.75 percent. The gross margin shortcut would say 70 percent (price minus product cost only), and a break-even ROAS of 1.43. The honest figure is 1 ÷ 0.5075 = 1.97. An ad set running at a ROAS of 1.7 looks profitable under the shortcut and loses money on every order.
Now the whole business. The store expects $120,000 in revenue next month and has $25,000 of fixed costs (rent, salaries, software).
- Contribution: $120,000 × 0.5075 = $60,900.
- Most it can spend on marketing and break even: $60,900 − $25,000 = $35,900, an MER of $120,000 ÷ $35,900 = 3.34.
- To keep $12,000 (10 percent) as profit: spend at most $23,900, an MER of 5.02.
The general form: marketing budget = revenue × contribution margin − fixed costs − target profit. It is the number to agree before the month starts, not after.
Repeat purchases change break-even
Break-even ROAS on the first order is strict. If customers buy again, an ad that brings a new customer can run below it and still pay over a year.
Example: at a 40 percent contribution margin, first-order break-even is 2.50. If a new customer's first 12 months bring 1.8 times their first order, the first-order ROAS that breaks even over the year is 1 ÷ (0.40 × 1.8) = 1.39. (Example numbers.)
Three rules keep this honest:
- Use your measured repeat rate for customers acquired through ads, from your own orders, not a hoped-for one. Repeat buyers from email and word of mouth often reorder more than buyers from cold ads.
- Apply it to new customers only. Ads that mostly reach existing customers earn no new lifetime value. Read new and returning revenue separately.
- Pay for the wait. Money spent today comes back over months. A business short of cash can be profitable on paper and still unable to fund next month's ads.
See cohort retention analysis for measuring the repeat rate by month of first purchase, and lifetime value for the definition.
Which number to hold each decision to
| Decision | Hold it to |
|---|---|
| Keep or cut one ad set | Its platform ROAS, as a trend, against break-even ROAS |
| Raise or lower total budget next month | MER against target MER |
| Price change or new supplier | Contribution margin, then re-read the table |
| Spend into a seasonal peak | Target MER for the month, with the peak's lower fixed cost share |
| Judge a prospecting campaign | Break-even over 12 months, if your repeat rate is measured |
Platform ROAS is useful for comparing ad sets inside one platform, where the overcounting is roughly the same for each. It is the wrong number to hold the business to. See attribution models explained for why each platform's credit adds up to more than your sales.
What the calculators leave out
- Variable costs beyond the product. Shipping, fees and returns can take 10 to 20 points of margin off an order. Break-even moves with them.
- Fixed costs. A ROAS above break-even pays for the order, not the rent. Only target MER includes them.
- Discounts. A 20 percent discount on a 50 percent margin product leaves 37.5 percent: (0.8 − 0.5) ÷ 0.8. Break-even jumps from 2.0 to 2.67 for discounted orders.
- Currency. Revenue and spend in different currencies give a meaningless ratio. Convert one side at a dated rate.
- Refunds. Use revenue after refunds and cancellations, or every ratio here reads high.
Common questions
How do I calculate break-even ROAS?
Divide 1 by your contribution margin as a decimal. A product with a 40 percent margin after product, shipping, fees and returns has a break-even ROAS of 1 ÷ 0.40 = 2.5.
What is a good MER?
The one above your target MER, worked out from your margin, fixed costs and profit goal. A published benchmark from another business with different margins tells you little. At a 60 percent contribution margin, an MER of 2.5 leaves 20 percent profit before fixed costs; at 30 percent it loses money.
What is the marketing efficiency ratio formula?
MER = total revenue ÷ total marketing spend, for the same period. Write down whether spend includes only ads or also agency fees, creators and tools, and keep it the same each month.
Is break-even ROAS the same as target ROAS in Google Ads?
No. Target ROAS is a bid strategy setting: the average conversion value you ask Google to aim for per dollar spent, measured with Google's own conversion values (Google). Set it from your break-even figure plus margin for profit, and remember Google's values follow Google's attribution, not your store's.
Should break-even ROAS use gross margin or contribution margin?
Contribution margin, when shipping, fees and returns are a real share of the price. Gross margin alone sets the bar too low and makes losing ads look profitable.
Sources
- Shopify: Marketing efficiency ratio. Checked October 2026.
- Google Ads Help: About Target ROAS bidding. Checked October 2026.
- The formulas are standard definitions; the table is computed from them. Example numbers are made up for illustration.
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