Tired of throwing good money after bad on ads that don’t really make you any money?
Well if you’re like most business owners, when your ads drive revenue, you think they’re working. What you don’t realize is that revenue ≠ profit.
It’s possible to bring in thousands of dollars in sales and still lose money on every customer you acquire.
So how do you know if you’re actually losing money on your ads? You need to start calculating your break-even ROAS.
In this post you’ll learn:
- What Is Break-Even ROAS And Why It Matters
- The Break-Even ROAS Calculation That Actually Works
- How To Use Break-Even ROAS For Smarter Ad Decisions
- Advanced Break-Even ROAS Strategies For Growth
What Is Break-Even ROAS And Why It Matters
Break-even ROAS is the lowest return on ad spend you need to avoid losing money.
Here’s an example: if you need to generate $250 in revenue to cover all your costs and make zero profit from a customer, but you only spend $100 on ads, your break-even ROAS is 2.5. That means for every $1 you spend on ads, you need to bring in at least $2.50 in revenue to avoid losing money.
This might sound simple, but most businesses don’t know their break-even ROAS and are literally losing money with every sale. They think they’re killing it with a 4:1 ROAS when in reality, they’re losing $20 on every sale after factoring in their true costs.
Here’s why break-even ROAS is more important than standard ROAS:
Standard ROAS calculations only look at your ad spend and the revenue it brings in. It doesn’t take into account the real costs of doing business. Break-even ROAS takes everything into account:
- Cost of goods sold
- Shipping and fulfillment
- Transaction fees
- Overhead expenses
- Profit margins
Without knowing your break-even ROAS, you’re just gambling with your ad spend. It may feel like you’re winning when you see a high ROAS, but you could be slowly bleeding money in the background.
The Break-Even ROAS Calculation That Actually Works
Ok, now it’s time for the big reveal. The formula you need to calculate break-even ROAS correctly.
Break-Even ROAS = Revenue Per Unit ÷ (Revenue Per Unit – Total Costs Per Unit)
Let’s work through an example:
Assume you sell a product for $100. Your total costs per unit are:
- Cost of goods: $40
- Shipping: $10
- Transaction fees: $5
- Total costs: $55
Plugging into the formula:
Your break-even ROAS = $100 ÷ ($100 – $55) = $100 ÷ $45 = 2.22
So your break-even ROAS is 2.22. You need a ROAS of 2.22 or greater to stop losing money. If you’re currently at 2.0 ROAS, you’re actually losing $10 per sale after factoring in all costs.
This is the real power of break-even ROAS: it tells you if you’re losing money on a sale despite generating revenue. Knowing this, you can take action to improve things, whether that’s optimizing your campaigns, adjusting your pricing, or cutting costs.
The easiest way to get these calculations right? Use an easy break even ROAS calculator that does all the work for you.
Pretty mind blowing huh?
But here’s how most people screw it up…
How To Use Break-Even ROAS For Smarter Ad Decisions
Now that you know your break-even ROAS, how do you actually use that number for better decision making?
Set Your Profit Targets
The first thing you can do is start setting profit targets based on your break-even ROAS. If your break-even ROAS is 2.22, you might shoot for a 3.0 ROAS to leave room for a profit.
Keep in mind that the average ROAS across industries is 2.87:1, but this number doesn’t take into account your actual business costs, so your break-even may be higher or lower.
The important thing is that you have a clear benchmark for what “good” looks like in your business, and that benchmark should be tied to your break-even ROAS.
Identify Losing Campaigns Fast
One of the most powerful uses of break-even ROAS is quickly identifying campaigns that are losing you money.
Any campaign that’s below your break-even ROAS should be paused or optimized ASAP. Period. It doesn’t matter how much revenue it’s bringing in if you’re not making a profit.
Make Scaling Decisions With Confidence
On the flip side, when you find campaigns performing above your break-even ROAS, you can feel confident scaling them up. You know exactly how much profit you’re making for each $1 spent on ads.
Say your break-even ROAS is 2.5, and you have a campaign that’s running at 4.0 ROAS. You can do a quick calculation to know you’re making $0.60 in profit for every $1 spent on ads. Scale the hell out of those campaigns.
Advanced Break-Even ROAS Strategies For Growth
Ok, now you know the basics, but what do the big dogs do with break-even ROAS to build a competitive advantage?
Factor In Customer Lifetime Value
The savviest businesses think beyond the first sale. They calculate break-even ROAS based on customer lifetime value (CLV).
If your customers typically make 3 purchases over their lifetime, your real revenue per acquisition is 3x higher. This dramatically lowers your break-even ROAS and opens up more profitable advertising opportunities.
Use Different Break-Even ROAS For Different Goals
Not all campaigns have the same purpose, so you can have different break-even ROAS targets based on campaign goals.
For example, maybe you’ll accept a lower ROAS for brand awareness or market expansion campaigns, but you need a much higher ROAS for customer acquisition campaigns.
You might create separate break-even ROAS for:
- Customer acquisition campaigns
- Retargeting campaigns
- Brand awareness campaigns
- Seasonal promotions
Monitor Break-Even ROAS By Product Category
If you sell multiple products with different costs and margins, calculate break-even ROAS by product category. This helps you see which products are most profitable and where you have the most wiggle room for ad spend.
The break-even ROAS for your electronics department might be 3.0 while your accessories department only needs 2.2.
This level of granularity helps you optimize budget allocation and focus on your most profitable product lines.
Optimize For Break-Even ROAS, Not Vanity Metrics
Stop patting yourself on the back when you get high traffic or even high revenue if you’re not actually making a profit. Focus all your advertising campaigns on optimizing for break-even ROAS.
The smartest business owners obsess over break-even ROAS, because they know it’s the only true indicator of advertising performance.
Breaking Down The Competition
Guess what the competition doesn’t know? Most ecommerce businesses aim for ROAS above 4:1, but don’t properly factor in their real costs. The e-commerce businesses that don’t get ROAS are the ones losing money. If you knew your true break-even ROAS, you could:
- Bid more aggressively on profitable keywords and campaigns
- Enter markets your competitors think are unprofitable
- Scale campaigns they’re too scared to touch
- Make data-driven decisions while they rely on guesswork
Getting It Right
Break-even ROAS is not just another metric to track. It’s the foundation of profitable advertising.
Instead of guessing and hoping their campaigns work out, the most successful businesses know their break-even ROAS and use that number to make every decision.
Start by calculating your break-even ROAS for your main product categories. Once you have that number, look at all your current campaigns and check them against your break-even ROAS.
You’ll be shocked to see what you find. Some of your “top performing” campaigns may be losing you money, and some campaigns you thought were underperforming are actually making a healthy profit.
When you start optimizing for break-even ROAS instead of just chasing revenue, you’re on your way to sustainable, profitable growth while the rest of the competition burns cash chasing vanity metrics.
Don’t just take our word for it. Calculate your break-even ROAS today and start making data-driven decisions based on profit, not just revenue.