Break Even ROAS: The Formula, Worked on One Order
Break-even ROAS is the return on ad spend at which an ad-driven order makes exactly zero profit: one divided by your contribution margin, where contribution is what an order leaves after every cost except advertising. On an illustrative $52.95 order that leaves $27.58, the margin is 52.1% and the break-even ROAS is 1.92. Below that, every order the ads bring in loses money, even though the ads are returning more revenue than they cost. At a reported ROAS of 1.6, this order loses $5.51.
The break-even ROAS formula
ROAS = revenue from ads / ad spend
Contribution = order revenue - goods - shipping - packaging - fees
Contribution margin = contribution / order revenue
Break-even ROAS = 1 / contribution margin
= order revenue / contribution
The same number, turned around, is your break-even cost per order: the most you can pay in ads to win one order without losing money. It is simply the contribution, $27.58 in the example below.
Why it works: at a ROAS of R, each order costs order revenue / R in ads. Set that equal to the contribution and solve for R, and you get order revenue divided by contribution.
Worked example: one order, line by line
All figures are illustrative. Fees in particular are examples - plans and processors differ, so use the rates on your own statements.
| Line | Amount |
|---|---|
| Product price | $48.00 |
| Shipping the customer pays | $4.95 |
| Order revenue | $52.95 |
| Payment processing and platform fees | -$2.37 |
| Cost of goods | -$14.00 |
| Shipping you pay | -$7.80 |
| Packaging | -$1.20 |
| Contribution before ads | $27.58 |
The fees line is 2.9% plus $0.30 for payment processing and 1% for platform or app fees, both charged on the whole order including the shipping charge.
So:
Contribution margin = $27.58 / $52.95 = 52.1%
Break-even ROAS = $52.95 / $27.58 = 1.92
What a ROAS of 1.6 actually earns
Suppose the ad dashboard reports a ROAS of 1.6. The ads bring in more revenue than they cost, which looks like a win. But at that ROAS each order costs $33.09 in ads, against a contribution of $27.58:
Profit per ad-driven order = $27.58 - $33.09 = -$5.51
Each order loses $5.51. A ROAS above 1 only means revenue exceeds ad spend; the goods, shipping and fees still have to come out of that revenue. A ROAS figure tells you nothing about profit until you know your own break-even.
Break-even is not the goal
Break-even ROAS is where you stop losing money, not where you start making it. If you want $8.00 of profit on each order, the most you can pay for it is $27.58 - $8.00 = $19.58, and the ROAS you need rises to:
Target ROAS = $52.95 / $19.58 = 2.70
The non-obvious part: margin decides the number, and it moves
Because break-even ROAS is one over the margin, it climbs steeply as margin falls:
| Contribution margin | Break-even ROAS |
|---|---|
| 20% | 5.00 |
| 25% | 4.00 |
| 30% | 3.33 |
| 40% | 2.50 |
| 50% | 2.00 |
| 60% | 1.67 |
At a 60% margin you break even at 1.67; at 20% you need 5.00. There is no single good ROAS - a figure that is comfortably profitable for one store loses money for another.
And the margin from a single clean order can be optimistic. Three things push the real break-even higher than that first calculation.
Returns. A returned order is not a zero. You refund the money and keep most of the costs: here the outbound shipping, packaging, return shipping, fees that are not refunded, and part of the goods that cannot be resold, for an illustrative loss of $21.37 per return. With returns at 8% of orders, the expected contribution per order falls from $27.58 to $23.67, and break-even ROAS rises from 1.92 to 2.24. Your ad platform counts the sale before it comes back.
Discount codes. A discount comes entirely out of contribution, so it cuts contribution by a bigger share than the discount itself. 20% off the product price cuts the contribution on this order to $18.36, and break-even ROAS rises to 2.36 - a bigger move than the returns made.
Which costs you count. Leave a cost out of the contribution and your break-even ROAS comes out too low. Every cost that scales with orders belongs in it.
Break-even ROAS for dropshipping
The formula does not change for dropshipping; the cost lines do. If your supplier’s price already includes delivery to the customer and you do no packing, the goods line is that supplier price and the shipping and packaging lines are zero. With an illustrative supplier price of $30.00 on the same $48.00 product and $4.95 shipping charge, contribution is $20.58, the margin is 38.9%, and break-even ROAS is 2.57. Returns and discount codes apply to it in the same way.
How to use it on your own store
- Take one representative order and list every cost that comes with it.
- Contribution = order revenue minus those costs. Margin = contribution / revenue.
- Break-even ROAS = 1 / margin. Adjust for your measured return rate and any discount codes in use.
- Compare it with the ROAS your ads report, measured on the same revenue definition. If the platform counts revenue before shipping or after discounts, use that revenue in step 2 as well.
How these were calculated
Contribution is order revenue (product price plus the shipping charge) minus cost of goods, shipping you pay, packaging, and percentage and fixed fees on the whole order. Break-even ROAS was found two ways: by the formula above through the code behind the calculator pack below, and independently for this page by building the order line by line and searching for the ROAS at which profit per ad-driven order is exactly zero. The two agree before anything is published. The returns figure assumes a full refund including the shipping charge, with resellable goods returning to stock at cost. Every price, cost, fee rate, return rate and discount here is an illustrative example, not a statement about any platform’s actual fees. This is not financial or tax advice.
If you want to put your own order through the same model - contribution, break-even ROAS, a target ROAS for the profit you want, returns, discount codes and a month of ad spend - the spreadsheet pack below has each one as an editable sheet.