What is break-even ROAS?
Growth economics & retention
How is break-even ROAS calculated?
Divide 1 by your margin, written as a decimal.
Our view: use contribution margin before marketing. That is revenue minus the variable costs of each order: cost of goods, shipping, payment fees, returns and discounts. Gross margin usually removes only the cost of goods, so in our view it gives a threshold that is too friendly. This is our convention, not an industry standard.
Whenever you quote a break-even figure, say which margin it came from.
Does it work for MER too?
Is break-even ROAS the same as target ROAS?
No. Break-even is the floor. A target sits above it. One vendor calls break-even the floor, not the target, and works out a required ROAS from contribution margin minus the margin you want left after ads2. And "target ROAS bidding" is a different thing again: a setting in an ad platform that tells it what return to aim for. See target ROAS bidding.
Which ROAS do you compare it with?
Careful here. A threshold built from profit only makes sense against revenue the ads caused. Platform ROAS includes credit for sales that may have happened anyway. Compared with that figure, break-even tells you less than it seems to. iROAS is the cleaner comparison.
For ZFD: A ROAS above break-even in the panel is a hint. An iROAS above break-even is much closer to the answer.
To work out the number for your own margins, use the Break-even ROAS & contribution margin calculator. For what to do with the threshold, read what is a good ROAS for ecommerce.
Worked example
Easily confused with
Break-even ROAS vs Target ROAS
The goal or the bidding setting, not the floor.
Break-even ROAS vs POAS
Profit on ad spend: profit from ad-attributed sales over ad spend. Sources define "profit" differently.
Break-even ROAS vs Return-adjusted ROAS
ROAS after accounting for returns. Returns are one of the costs inside contribution margin.
Buzzword alert
"We are above break-even"
Usually means: the ROAS is higher than a floor, whose margin basis is not shown.
Ask: does the break-even include returns and shipping?
"Profitable ROAS"
Usually means: ROAS that clears a threshold, often on platform-reported revenue.
Ask: is that platform-reported revenue or revenue in our shop?
FAQ
Is break-even ROAS the same as a good ROAS?
No. Break-even only means no loss on the orders the ads brought. A good ROAS also has to cover fixed costs and leave profit.
Why not use gross margin?
Gross margin ignores shipping, payment fees, returns and discounts. Our view is that it understates the threshold. The result is a break-even that is easier to hit than it should be.
Does break-even change over time?
Yes. When margin moves, the threshold moves with it. Recalculate when costs, prices or discounts change.
Let’s find what’s actually working.
Next step. Check what your ROAS looks like on explicit assumptions. Use the Is your ROAS real? calculator.