marketingmathcalc

ROAS, ROI and break-even ROAS: which number answers which question

ROAS asks how much revenue each unit of ad spend brought back. ROI asks whether the campaign made money after product and marketing costs. Break-even ROAS is the ROAS at which the answer to the second question is exactly zero. Know your break-even ROAS and every ROAS report tells you about profit too.

Last updated by Marketing Math Calc, published by AUSSIE-AI LTD

Three formulas

ROAS = revenue ÷ ad spend

ROI = (revenue − product cost − marketing cost) ÷ marketing cost × 100

Break-even ROAS = 1 ÷ margin before ad costs

ROAS is a ratio of revenue to spend. Google Ads writes it as a percentage, so $5 of sales for $1 of spend is a 500% target ROAS. Amazon Ads reports the inverse, ACoS: ad spend ÷ ad revenue × 100.

ROI has profit on top. On Google Ads' help page the bottom of the fraction is all costs, product cost included; many marketing teams divide by the marketing cost only. The ROI calculator does both and labels which one you chose.

One campaign, three answers

A brand sells a skincare set for $45. Product, packaging and shipping cost $27 per order, and payment fees another $1.35. Last month:

  • Ad spend: $4,000
  • Orders from ads: 260
  • Revenue from ads: 260 × $45 = $11,700

ROAS: $11,700 ÷ $4,000 = 2.93x, or 292.5%. On a dashboard, that looks fine.

Margin before ads: ($45 − $27 − $1.35) ÷ $45 = $16.65 ÷ $45 = 37%.

Break-even ROAS: 1 ÷ 0.37 = 2.70x.

ROI on marketing cost: product and fee costs are 260 × $28.35 = $7,371. Profit = $11,700 − $7,371 − $4,000 = $329. ROI = $329 ÷ $4,000 = 8.23%.

So the campaign is above break-even, but only just. Each $1 of ads brought $2.925 of revenue, $1.08 of gross profit after product costs, and 8 cents of profit after paying for itself.

MeasureFormulaResult
ROAS$11,700 ÷ $4,0002.93x
ACoS$4,000 ÷ $11,70034.19%
Break-even ROAS1 ÷ 0.372.70x
Break-even ACoSequals the margin37%
ROI on marketing cost$329 ÷ $4,0008.23%

What happens when ROAS slips

Suppose next month costs rise and ROAS drops to 2.5x on the same spend. Revenue is $10,000, about 222 orders. Gross profit is $10,000 × 0.37 = $3,700, less than the $4,000 of ads. ROI turns negative: −7.5%. A drop that looks small on a ROAS chart, from 2.93x to 2.5x, moved the campaign from profit to loss, because the break-even line at 2.70x sits between them.

That is the practical use of break-even ROAS: it turns every ROAS report into a profit report without redoing the costs each time. The break-even ROAS calculator also gives a target ROAS for a chosen profit share. For this brand, keeping 10% of revenue as profit after ads needs 1 ÷ (0.37 − 0.10) = 3.70x.

Which number for which decision

  • Daily bid and budget changes: ROAS, compared with your break-even and target ROAS. It is quick to read from ad platforms and responds fast.
  • Whether a campaign or channel is worth keeping: ROI, with product costs and the full marketing cost, over a long enough period to smooth out noise.
  • Whether a first order can lose money: neither alone. If customers reorder without more ad spend, a first-order ROAS below break-even can still pay off. That decision needs lifetime value and a payback period.

Common mix-ups

Using gross margin from the accounts. A company-wide gross margin may include products that are never advertised. Use the margin of what the ads actually sell.

Forgetting per-order costs. Free shipping, discount codes and returns all come out of the margin. Leave them out and break-even ROAS comes out too low.

Mixing tax-inclusive revenue. If revenue includes sales tax or VAT, ROAS looks better than it is. Use revenue before tax, the same basis as the margin.

Questions

Is a ROAS of 2 good?

Only relative to your margin. With a 60% margin, break-even is 1.67x and a 2x ROAS makes money. With a 40% margin, break-even is 2.5x and a 2x ROAS loses money.

Can ROI be negative while ROAS is above 1?

Yes. A ROAS above 1 means revenue exceeded ad spend, but product costs come out of that revenue too. The skincare example at 2.5x ROAS has a negative ROI.

How do ACoS and break-even ACoS relate?

ACoS is ad spend ÷ revenue. Break-even ACoS equals your margin before ad costs; Amazon Ads' guide says ACoS has to stay below the profit margin to keep a profit.

Sources