ROAS and break-even ROAS calculator

ROAS (return on ad spend) is revenue from ads divided by what you spent on them. Spend $2,000, make $5,000, and your ROAS is 2.5. Some people write it as 250% or 2.5x. It's the same number.

The trouble is that ROAS says nothing about profit. A 2.5 ROAS is great for a candle brand with an 80% margin and a disaster for an electronics store working on 25%. That's why the second half of the calculator matters more than the first.

There's a second trap too. The revenue Meta reports is the revenue Meta attributes to your ads, which isn't always the revenue your ads caused. For a gut check, compare it with total revenue divided by total ad spend over the same period. If the two numbers are far apart, read why high ROAS can still lose money.

Break-even ROAS is 1 divided by your contribution margin. Contribution margin is what's left of an order after product cost, shipping and fees, but before ads.

Take the default numbers above. A $60 order, minus $18 of product, $7 of shipping and $1.80 of fees (3% of $60), leaves $33.20. That's a 55.3% margin, so break-even ROAS is 1 ÷ 0.553 = 1.81. At a ROAS of 1.81 the ads pay for themselves and nothing else. You keep nothing.

Target ROAS works the same way, but you subtract the profit you want first. If you want to keep 15% of each order, you have 40.3% left to spend on ads, so target ROAS is 1 ÷ 0.403 = 2.48.

Max cost per purchase is the same idea in dollars: the $33.20 margin is the most you can pay Meta for one sale before you lose money on it. If you sell to the same customer again, you can afford more on the first order, but only if you know your repeat rate. If you don't, plan on the first order.

You have three levers, and they're not equal.

• Raise the margin. Bundles, a higher price, cheaper shipping. Every point of margin lowers your break-even ROAS for every ad you'll ever run.
• Fix the ad. If the click-through rate is low, the hook is the problem. If clicks are fine and sales aren't, look at the page or the offer. The free Facebook ad analyzer tells you which.
• Stop testing near-duplicates. Five versions of the same idea often get treated as one ad, so you pay for a test that can't find anything new. Run them through the free similarity checker first.

Look at the gadget store. With a third of each order left after costs, it needs a ROAS of 3.00 just to break even, well above the 1.94 median for electronics. That brand can't scale on first-order ROAS alone. It needs a higher price, a cheaper supplier, or repeat purchases it can count on.

The supplement brand is the opposite surprise. Its median industry ROAS of 1.44 looks weak, but with a 65% margin its break-even is 1.54, so a brand slightly above the median is close to profitable on the first order, and supplements are often bought again.