Find the minimum ROAS you need to cover your costs and not lose money on advertising.
Revenue minus cost of goods sold (COGS), as a percentage of revenue.
Additional fixed costs allocated per sale as % of revenue (fulfilment, ops, etc.).
What is Break-Even ROAS?
Break-even ROAS is the minimum return on ad spend required for your advertising to be profitable — or more precisely, to not lose money. At break-even ROAS, every dollar you spend on advertising is exactly offset by the gross profit from the resulting sales.
Any ROAS above break-even means you're making money. Below it, you're paying more for ads than the gross profit they generate.
Important distinction: Break-even ROAS is based on gross margin, not revenue. A business with 30% gross margin has a much higher break-even ROAS than one with 70% margins — even if both have the same ad spend.
Gross Margin 20%
5.0x
Break-even ROAS
Gross Margin 40%
2.5x
Break-even ROAS
Gross Margin 60%
1.67x
Break-even ROAS
How to Calculate Break-Even ROAS
The calculation is straightforward once you know your gross margin:
Find your gross margin — this is (Revenue − COGS) ÷ Revenue × 100. If you sell a product for $100 and it costs you $60 to make/buy, your gross margin is 40%.
Optionally, add any overhead costs (fulfillment, payment processing, customer service) that scale with each sale.
Calculate: Break-Even ROAS = 1 ÷ Net Margin
For example, with a 40% gross margin and 5% overhead, your net margin is 35%. Break-even ROAS = 1 ÷ 0.35 = 2.86x. You need $2.86 in revenue for every $1 in ad spend just to break even.
Break-Even ROAS Formula
Basic Formula
1 ÷ (Gross Margin / 100)
Using gross margin only
With Overhead
1 ÷ ((Gross Margin − Overhead) / 100)
Accounting for additional variable costs
Example: Gross margin 45%, overhead 5% → Net margin 40% → Break-even ROAS = 1 ÷ 0.40 = 2.5x. You need at least $2.50 in revenue for every $1 spent on ads.
When to Use Break-Even ROAS
Setting Campaign Targets
Use break-even ROAS as your floor when setting ROAS targets. Your actual target ROAS should be higher — accounting for profit goals, LTV, and margin for overhead. A common rule: target ROAS = break-even × 1.5–2x.
Pausing Underperforming Campaigns
If a campaign is running below break-even ROAS, it's actively destroying margin. Use break-even ROAS as a clear threshold for pausing or restructuring campaigns that aren't profitable.
Evaluating New Channels
When testing a new ad platform, break-even ROAS gives you a clear success criteria. If TikTok Ads can't hit break-even ROAS after a testing period, the unit economics don't work for that channel.
Planning for Scale
As you scale ad spend, ROAS typically declines because you exhaust high-performing audiences. Break-even ROAS defines the lower bound — the minimum acceptable point as you push budgets higher.
Improving Your Break-Even Point
You can improve break-even ROAS in two ways: increase your margins, or reduce the costs that factor into it.
Increase Gross Margin
Increase prices (test price elasticity first)
Reduce COGS through supplier negotiation or volume
Bundle products to increase average order value
Shift mix toward higher-margin SKUs
Add digital products with near-zero COGS
Reduce Variable Costs
Optimize fulfillment and shipping costs
Reduce return rates through better product descriptions
Negotiate lower payment processing fees
Automate customer service to reduce overhead per order
Improve packaging efficiency
Increase Customer LTV
Add upsells and cross-sells post-purchase
Introduce subscriptions or repeat purchase incentives
Build an email retention program
Improve product quality to drive organic referrals
Use loyalty programs to increase purchase frequency
Optimize Ad Performance
Improve creative quality to lower CPC
Tighten audience targeting to raise conversion rates