Break-even ROAS calculator: the line between loss and margin
This break-even ROAS calculator divides 1 by your contribution margin before marketing. The result is the ROAS at which ads earn back exactly their cost on the orders they are credited with. It says nothing about whether those orders were caused by the ads.
Calculate your break-even ROAS
Enter your contribution margin before marketing. Everything updates as you drag.
Break-even ROAS at this margin: 2.5×
What is left per order after cost of goods, shipping, payment costs, returns and discounts, before any marketing spend. Not gross margin (contribution margin). Keep revenue and margin on the same footing (VAT, returns).
Work out the margin
Optional. Enter one order and each variable cost per order (EUR); the margin above follows.
Break-even ROAS
2.5×
at a contribution margin of 40% before marketing
- Margin before marketing40%
- Contribution after marketing per €1 of ads–
Break-even ROAS tells you the line. It does not tell you whether reported ROAS is real. For that, use the Is your ROAS real? calculator.
What does it calculate?
One number. Break-even ROAS is 1 divided by your contribution margin before marketing. Above it, an order credited to ads leaves some margin after the ad cost. Below it, the order costs more in ads than it brings in margin.
Margin is the whole input. Get it wrong and the threshold is wrong with it.
How does it work, and which margin does it use?
Contribution margin is our convention here: revenue minus the variable costs of an order, before marketing. That means cost of goods, shipping, payment costs, returns and discounts. What is left after the ad spend, we call contribution after marketing.
Published guides use different margins. An analytics vendor's guide divides by gross margin1. A finance consultancy's guide divides by contribution margin before ads, after costs such as shipping, payment processing and returns2. Both use the same formula; the input differs. Gross margin only takes off the cost of goods, so it is the larger number and gives a lower threshold. Our view: shipping, payment costs and returns still come out of every order, so we include them.
Example (illustrative): An order is worth €100. Variable costs come to €60, so contribution margin is 40 per cent. Break-even ROAS is 1 divided by 0.4, which is 2.5. At a ROAS of 2.5, €1 of ads brings €2.50 of revenue and €1 of margin. Contribution after marketing is zero.
The same formula works for MER. In our convention MER is total revenue divided by total marketing spend, so break-even MER is also 1 divided by margin. Blended ROAS divides by media spend only. Say which denominator you use.
Break-even or target?
Break-even is the line where you stop losing money. Target ROAS is the line plus the profit you want. A bidding setting with a similar name inside an ad platform is an instruction to the platform. It is not a result.
Concepts used
FAQ
What margin should I enter?
Contribution margin before marketing, as a percentage of revenue. If you only know gross margin, enter it, but treat the result as a floor. The line based on contribution margin sits higher.
Does break-even mean I am making a profit?
No. It means ads cover their own cost on credited orders. Fixed costs and anything the ads did not cause still sit outside it.
What if my ROAS is below break-even?
Do not switch the channel off on this alone. Check whether the credit is real and whether customers return. The chain is covered in ROAS looks good but no profit.
How do I work out contribution margin per order?
Take the order value. Subtract cost of goods, shipping, payment costs, returns and discounts. Divide what is left by the order value. That is our convention. Guides differ on which costs count, so say which ones you included.
Can I use this for MER?
Yes. Use the same formula, and use your total revenue and total marketing spend. State the denominator whenever you quote the number.
Sources
Next step
Know your line, and still not sure which channels sit under it? Talk through your budget decision with us.