How to Calculate Break-Even ROAS for Ecommerce

One of the most common mistakes I see when auditing Google Ads accounts is businesses optimizing for an arbitrary ROAS (Return on Ad Spend) target.

"We want a 4.0 ROAS," they say.

"Why?" I ask.

"Because that's what we did last year," or "That's what our agency told us is good."

But without knowing your Break-Even ROAS, a 4.0x return might actually be losing you money. Conversely, you might be pausing profitable campaigns at 2.5x because you think it's too low.

What is Break-Even ROAS?

Your Break-Even ROAS is the exact return you need from your ads to cover the cost of the product (COGS) and your variable costs.

If your ROAS is above this number, you are making profit on the first order.
If your ROAS is below this number, you are losing money on the first order.

The Formula

Let's break it down with an example:

• You sell a pair of shoes for £100.
• The shoes cost you £40 to make (COGS).
• Shipping and packaging costs £5.
• Transaction fees (Stripe/PayPal) are £3.

Total Costs: £48
Gross Profit: £52 (£100 - £48)
Profit Margin: 52% (0.52)

Now, apply the formula:

1 / 0.52 = 1.92

This means your Break-Even ROAS is 1.92x. As long as your Google Ads campaigns are achieving a ROAS higher than 1.92, you are not losing money.

Why This Matters

If you were aiming for a 4.0x ROAS in the example above, you would be leaving a huge amount of volume on the table. You could bid more aggressively, scale your spend, and acquire more customers while still remaining profitable at a 2.5x or 3.0x ROAS.