The ad dashboard says 2.4x. Is that good? It depends on what is left of each sale after the product, shipping, fees and refunds, and almost nobody has that number to hand. Break-even ROAS is that number turned into a threshold: the return on ad spend below which every ad dollar loses money.
ROAS is reported revenue divided by ad spend, so measure everything against the same revenue: the price after discount, plus any shipping you charge, before returns. Call it R.
Refunds hand some revenue back. The payment fee is usually kept by the processor even when you refund. Marketplace fees apply to what you keep. Cost of goods and outbound shipping are spent on every order, and only partly recovered when returned stock can be resold.
Contribution per order is the most you can pay to win that order and still break even. Pay less and you profit.
If you earn 40 cents of contribution per reported dollar, break-even ROAS is 1 ÷ 0.40 = 2.5x. The thinner the margin, the higher it climbs, quickly.
For profit of m of revenue, the allowable CPA is contribution minus m × R, and target ROAS is R divided by that. At a 40% contribution margin a 10% net margin needs 3.33x, and a 20% one needs 5x. Above the contribution margin it is not reachable at any ROAS.
If customers reorder, the first order does not have to repay the ad spend. Add the expected repeat orders and what each earns to get a lifetime break-even, but keep the first-order figure beside it: it is the one that protects cash.
An invented store sells a product at $80 with a 10% average discount, so R is $72. Cost of goods is $22, shipping $7, the payment fee 2.9% plus $0.30, and 8% of orders are refunded.
| Line | Per order |
|---|---|
| Reported revenue | $72.00 |
| Refunds (8%) | -$5.76 |
| Payment fee | -$2.39 |
| Cost of goods | -$22.00 |
| Shipping | -$7.00 |
| Contribution = max CPA | $34.85 |
Break-even ROAS is 72 ÷ 34.85 = 2.07x. A 10% net margin needs a CPA of 34.85 − 7.20 = $27.65, or 2.60x; 20% needs $20.45, or 3.52x. If the average customer orders 1.6 times and repeat orders earn as much as the first, lifetime contribution is $55.76 and the lifetime break-even drops to 1.29x — but a campaign at 1.5x is still losing money on the first order.
There is no universal good ROAS. The right number is the one above your own break-even, which depends on your margin: a store keeping 60% of revenue before ads breaks even at about 1.7x, while one keeping 25% needs 4x. Industry averages of 3x or 4x are only meaningful if your costs happen to match.
No. Break-even ROAS gives zero profit. Target ROAS is the higher figure you set so the campaign earns the margin you want after ad spend, and it must always sit above break-even.
Use first-order break-even to decide what you can afford while cash is tight, and the lifetime-value figure to see the ceiling if customers really do come back. Only count repeat orders you have measured, over a time window you can fund.