--- title: "Break-even ROAS formula" description: "Break-even ROAS is the return on ad spend where you stop losing money. The formula, worked examples at different margins, and the mistakes people make." source: https://savepad.app/blog/break-even-roas --- [Blog](https://savepad.app/blog) · 13 March 2024 # How to calculate break-even ROAS Break-even ROAS is the return on ad spend where you stop losing money. The formula, worked examples at different margins, and the mistakes people make. *A spreadsheet of ad results next to the ads themselves in Savepad* **TLDR** - **Break-even ROAS = 1 ÷ margin.** At a 40% margin, you need a ROAS of 2.5 to break even. - Use your margin after cost of goods, shipping, payment fees, and returns, not just the price minus cost. - A “good” ROAS doesn’t exist in general. 3x is a loss at a 25% margin and a big win at 60%. - Skip the maths: the [break-even ROAS calculator](https://savepad.app/free-tools/break-even-roas-calculator) solves for any of the numbers. ## What it means ROAS is revenue divided by ad spend. Spend €1,000, make €3,000, your ROAS is 3. Break-even ROAS is the ROAS at which the profit from those sales exactly pays for the ads. Below it, every sale from ads costs you money. Above it, you’re making money on the first purchase. ## The formula > Break-even ROAS = 1 ÷ profit margin Where profit margin is a decimal: 40% is 0.4. Why: if you keep €0.40 of every €1 of revenue, you need €2.50 of revenue to keep €1, and that €1 has to pay for €1 of ads. ## Worked examples | Margin | Break-even ROAS | So €1,000 of ads needs | | --- | --- | --- | | 20% | 5.0 | €5,000 revenue | | 30% | 3.33 | €3,333 revenue | | 40% | 2.5 | €2,500 revenue | | 50% | 2.0 | €2,000 revenue | | 60% | 1.67 | €1,667 revenue | | 75% | 1.33 | €1,333 revenue | Low-margin products need a very high ROAS just to stand still. Software with 80% margins can run ads at a ROAS most ecommerce brands would cry at. ## Get the margin right This is where most people fool themselves. Your margin is not price minus product cost. For a product sold online, take the price and subtract: - Cost of goods - Shipping and packaging - Payment fees (Stripe, PayPal, Shopify Payments, around 1.5% to 3%) - Returns and refunds, as an average - Any per-order app or fulfilment fees A €50 product that costs €20 to make looks like a 60% margin. After €6 shipping, €1.50 fees, and a 10% return rate, it’s closer to 35%. That moves break-even ROAS from 1.67 to 2.86. Big difference. ## When below break-even is fine If customers buy again, your first-order ROAS can be below break-even and still make money over a year. That’s where lifetime value comes in, and why subscription businesses happily lose money on the first month. The [CAC and payback](https://savepad.app/blog/how-to-calculate-cac) post covers that side, and I wrote about the [LTV to CAC ratio](https://ronakganatra.com/posts/ltv-cac-b2b-saas) on my own blog. ## And the ads themselves The numbers tell you whether an ad works. They don’t tell you why. Keep the ads that hit well above break-even in a swipe file with the ROAS written next to them, and the ones that flopped too. Six months later that’s a much better brief than a dashboard. The [ad swipe file](https://savepad.app/blog/ad-swipe-file) post shows how. Related calculators: [CAC](https://savepad.app/free-tools/cac-calculator), [payback period](https://savepad.app/free-tools/payback-period-calculator), and [ad frequency](https://savepad.app/free-tools/ad-frequency-calculator). *A mock running shoe ad for the fictional brand Northwind* 0261 · ROAS 4.1 · #winner *A mock meal kit ad for the fictional brand Freshbox* 0358 · ROAS 2.3 · #below-break-even *A mock frame from a UGC video ad* 0455 · ROAS 3.2 · #ugc Ads kept with their numbers: each one tagged with the ROAS it hit against a 2.5 break-even. ## FAQ ### What is the formula for break-even ROAS? Break-even ROAS is 1 divided by your profit margin. With a 40% margin, that's 1 / 0.4 = 2.5, so every €1 of ads needs to bring in €2.50 of revenue to break even. ### What's a good ROAS? Any ROAS above your break-even ROAS makes money on the first sale. What counts as good depends entirely on your margin, so a 3x ROAS can lose money for one brand and print it for another. ### Should I use gross margin or contribution margin? Contribution margin, if you can. Take the price, minus cost of goods, shipping, payment fees, and returns. Using gross margin alone makes break-even look easier than it is. [Join the waitlist](https://savepad.app/#waitlist) ## Read these next - [How to calculate CAC and CAC payback: Customer acquisition cost and CAC payback without the finance-speak: the formulas, what to include, worked examples, and healthy numbers for SaaS.](https://savepad.app/blog/how-to-calculate-cac) - [How to build an ad swipe file from the ad libraries: Where to find ads worth saving, how to spot the ones that are working, and how to sort a paid social swipe file so you can find a hook in 30 seconds.](https://savepad.app/blog/ad-swipe-file) - [The best ad swipe file tools: Most ad swipe file lists are written by ad spy tools ranking themselves first. Here's the field with real prices, which ones use AI, and which save more than ads.](https://savepad.app/blog/best-ad-swipe-file-tools)