Three formulas
ROAS = revenue ÷ ad spend
ROI = (revenue − product cost − marketing cost) ÷ marketing cost × 100
Break-even ROAS = 1 ÷ margin before ad costs
ROAS is a ratio of revenue to spend. Google Ads writes it as a percentage, so $5 of sales for $1 of spend is a 500% target ROAS. Amazon Ads reports the inverse, ACoS: ad spend ÷ ad revenue × 100.
ROI has profit on top. On Google Ads' help page the bottom of the fraction is all costs, product cost included; many marketing teams divide by the marketing cost only. The ROI calculator does both and labels which one you chose.
One campaign, three answers
A brand sells a skincare set for $45. Product, packaging and shipping cost $27 per order, and payment fees another $1.35. Last month:
- Ad spend: $4,000
- Orders from ads: 260
- Revenue from ads: 260 × $45 = $11,700
ROAS: $11,700 ÷ $4,000 = 2.93x, or 292.5%. On a dashboard, that looks fine.
Margin before ads: ($45 − $27 − $1.35) ÷ $45 = $16.65 ÷ $45 = 37%.
Break-even ROAS: 1 ÷ 0.37 = 2.70x.
ROI on marketing cost: product and fee costs are 260 × $28.35 = $7,371. Profit = $11,700 − $7,371 − $4,000 = $329. ROI = $329 ÷ $4,000 = 8.23%.
So the campaign is above break-even, but only just. Each $1 of ads brought $2.925 of revenue, $1.08 of gross profit after product costs, and 8 cents of profit after paying for itself.
| Measure | Formula | Result |
|---|---|---|
| ROAS | $11,700 ÷ $4,000 | 2.93x |
| ACoS | $4,000 ÷ $11,700 | 34.19% |
| Break-even ROAS | 1 ÷ 0.37 | 2.70x |
| Break-even ACoS | equals the margin | 37% |
| ROI on marketing cost | $329 ÷ $4,000 | 8.23% |
What happens when ROAS slips
Suppose next month costs rise and ROAS drops to 2.5x on the same spend. Revenue is $10,000, about 222 orders. Gross profit is $10,000 × 0.37 = $3,700, less than the $4,000 of ads. ROI turns negative: −7.5%. A drop that looks small on a ROAS chart, from 2.93x to 2.5x, moved the campaign from profit to loss, because the break-even line at 2.70x sits between them.
That is the practical use of break-even ROAS: it turns every ROAS report into a profit report without redoing the costs each time. The break-even ROAS calculator also gives a target ROAS for a chosen profit share. For this brand, keeping 10% of revenue as profit after ads needs 1 ÷ (0.37 − 0.10) = 3.70x.
Which number for which decision
- Daily bid and budget changes: ROAS, compared with your break-even and target ROAS. It is quick to read from ad platforms and responds fast.
- Whether a campaign or channel is worth keeping: ROI, with product costs and the full marketing cost, over a long enough period to smooth out noise.
- Whether a first order can lose money: neither alone. If customers reorder without more ad spend, a first-order ROAS below break-even can still pay off. That decision needs lifetime value and a payback period.
Common mix-ups
Using gross margin from the accounts. A company-wide gross margin may include products that are never advertised. Use the margin of what the ads actually sell.
Forgetting per-order costs. Free shipping, discount codes and returns all come out of the margin. Leave them out and break-even ROAS comes out too low.
Mixing tax-inclusive revenue. If revenue includes sales tax or VAT, ROAS looks better than it is. Use revenue before tax, the same basis as the margin.