What is a good ROAS? How to calculate break-even ROAS

A good ROAS is any ROAS above your break-even point, and that point comes from your margin, not from a market average. The formula is simple: break-even ROAS = 1 ÷ contribution margin. If 35% of every order is left after product cost, delivery, payment fees and returns, you need a ROAS of at least 2.86 just to avoid losing money on ads.

The question “what is a good ROAS?” comes up in almost every conversation with an online store. Answers like “anything above 4 is fine” are common, but they mean nothing without the company’s margin. Below is the method we use to set a threshold and a target that will hold up in front of your accountant.

What ROAS is, and what it doesn’t tell you

ROAS (return on ad spend) is the revenue attributed to ads divided by the cost of those ads. Google describes it exactly this way in its Target ROAS documentation: 5 units of sales for every 1 unit spent is a 500% target ROAS. The catch is that ROAS talks about revenue. It doesn’t know what the product cost, what delivery cost or how many orders came back.

That is why a ROAS of 4 can be very profitable for a high-margin digital product and lose money for a low-margin electronics store. Unlike ROI, which relates profit to investment, ROAS is an intermediate metric. It only becomes useful once you compare it with your own threshold.

How do you calculate break-even ROAS?

You need five numbers you already have in your accounts or your store. Use average values per order over the last 3–6 months so a single unusual month doesn’t skew the result.

1. Calculate the average order value excluding VAT (the net revenue the company keeps).
2. Subtract cost of goods sold, any shipping and packaging you pay for, payment fees and an allowance for returns and cancellations.
3. What is left is your contribution margin per order; divide it by the order value to get a percentage.
4. Calculate the threshold: break-even ROAS = 1 ÷ contribution margin (as a fraction, e.g. 0.35).
5. Set the target: target ROAS = 1 ÷ (contribution margin − target profit as a share of revenue).

Illustrative example: an online store with a 35% margin

The figures below are hypothetical and only show the calculation. The average order is €60 excluding VAT. Goods cost €30, shipping and packaging €6, payment fees and the returns allowance €3. That leaves €21, a contribution margin of 35%.

• Break-even ROAS: 1 ÷ 0.35 = 2.86. Below this level, every order from ads loses money.
• Target ROAS for a 10% profit on revenue: 1 ÷ (0.35 − 0.10) = 4.0.
• If the store sends platforms the order value including VAT (assume 21%), the threshold as read in the platform becomes 2.86 × 1.21 ≈ 3.46 and the target 4.0 × 1.21 ≈ 4.84.
• Takeaway: a reported ROAS of 3.2 looks fine on paper, but in this example it means a loss on every order.

Why platform ROAS is usually more optimistic than reality

In account audits we frequently see three sources of difference. The first is the value sent to the platform: it includes VAT, shipping or orders that are later cancelled. The second is attribution: each platform credits sales according to its own rules, and the same order can appear in two platforms’ reports. We explain the mechanism in our note on conversions vs sales. The third is existing customers: part of the revenue attributed to campaigns comes from people who would have bought anyway.

In practice, the threshold calculated above has to be applied to a clean number. The fix is not to ignore platform ROAS, but to know what it contains and reconcile it monthly with real sales. This is exactly the part of marketing measurement that is most often missing.

ROAS or MER: which should drive budget decisions?

MER (marketing efficiency ratio) is the store’s total revenue divided by total ad spend across all channels. It doesn’t tell you which campaign worked, but it can’t be inflated by double attribution. We use both levels together:

• Platform ROAS for optimisation inside the account: which campaign, which product group, which creative.
• MER calculated on real sales for the budget decision: how much you can spend in total without dropping below the threshold.
• The MER threshold is calculated the same way: 1 ÷ contribution margin, applied to total net revenue.

When is a ROAS below break-even acceptable?

There is only one situation where it makes sense: when you know from your own data that new customers come back and buy again. If a customer places three orders on average in their first year, the first order can be bought at a lower ROAS because the profit comes from the following orders. The condition is that repeat-purchase history is calculated from the store, not estimated. Without it, buying customers below break-even is just buying revenue.

In that case, targets are split by customer type: a lower ROAS accepted for new customers and a higher one for remarketing and existing customers. The logic is the same as customer acquisition cost, which we use in customer acquisition projects.

Checklist: before you change budgets based on ROAS

Run these checks once a month, on the same period for every source:

• Contribution margin has been recalculated with current prices and costs.
• You know whether the conversion value sent to platforms includes VAT, shipping or discounts.
• Cancelled and returned orders are removed from the revenue you compare against.
• You have compared the sum of platform-reported conversions with the real number of orders.
• New and existing customers are separated, at least at MER level.
• The target ROAS in Google Ads or Meta reflects your threshold, not an inherited number.

What comes next

A break-even threshold turns the conversation about ads from a debate about “good ROAS” into a business decision: what an order costs and what is left from it. If you’re not sure what the numbers in your accounts contain, start with the acquisition-system diagnostic, then set targets in performance marketing.