A campaign with a 2.0x ROAS can be a winner for one product and a money-loser for another. The difference is break-even ROAS: the return each ad dollar must generate before the order stops losing money.
The formula
Break-even ROAS = price รท contribution margin before ads. Contribution margin is what is left of the price after every variable cost: product, packaging, freight, payment fees, shipping, pick and pack, and returns.
An illustrative example
| Price (AOV) | Fully loaded cost | Contribution before ads | Break-even ROAS |
|---|---|---|---|
| $30.00 | $16.17 | $13.83 | 2.17x |
| $75.00 | $30.48 | $44.52 | 1.68x |
| $150.00 | $53.65 | $96.35 | 1.56x |
These figures use illustrative shipping, pick/pack and returns costs. Replace them with your own. The point: the $30 product needs a 2.17x return just to break even, while the $150 product breaks even at 1.56x.
How to use it
- Judge campaigns against it. Anything below break-even loses money on the first order. Anything above can be scaled.
- Compare it with your target. If your customer acquisition budget is one-third of the price, your target ROAS is about 3.0x, which leaves room for profit.
- Recalculate when costs change. Shipping rates, supplier prices and return rates all move it.
- Model every promotion. Discounts raise break-even ROAS. In the mid-tier example, a 25% launch discount moves it from 1.68x to about 2.18x.
Know this number before you launch ads, and your scaling decisions stop being guesses.
