How to calculate ROAS
ROAS is revenue from ads divided by the cost of those ads:
ROAS = ad revenue ÷ ad spend
$5,000 in revenue from $1,250 of Meta or Google Ads spend is a ROAS of 4x. On its own, that number says nothing about profit. That's what break-even ROAS is for.
How to calculate break-even ROAS
Start from what one order leaves you after the costs that scale with each sale, your contribution per order:
contribution = order value − product cost − shipping − payment fees break-even ROAS = order value ÷ contribution break-even CPA = contribution
Worked example
| Average order value | $50.00 |
|---|---|
| Product cost | −$15.00 |
| Shipping | −$5.00 |
| Payment fees (2.9% + $0.30) | −$1.75 |
| Contribution per order | $28.25 (56.5%) |
| Break-even ROAS | 50 ÷ 28.25 = 1.77x |
| Break-even CPA | $28.25 |
Any ROAS above 1.77x makes money on the first order. At the 4x ROAS above, the campaign leaves about $1,575 of profit on $5,000 of revenue.
The ROAS you need for a profit target
Breaking even isn't the goal. To keep a target net margin after ads, subtract it from your contribution margin before inverting:
target ROAS = 1 ÷ (contribution margin − target margin)
With a 56.5% contribution margin and a 10% profit target: 1 ÷ (0.565 − 0.10) = 2.15x. If the target margin is higher than the contribution margin, no ROAS gets you there; the fix is pricing or costs, not ads.
Three ways to improve ROAS
- Raise order value. Bundles, upsells and post-purchase offers increase revenue per order while the cost of acquiring that order stays the same.
- Improve conversion rate. Trust badges, clear shipping and return policies, and faster pages turn more of the same clicks into orders.
- Cut what doesn't convert. Pause ad sets running below your break-even ROAS once they've had enough spend to judge.