Break-even ROAS: a worked example with made-up numbers

The made-up product group

• Average order value: 60.
• Product cost: 20. Shipping paid by the store: 6. Payment fees: 2. Expected returns cost: 4.

Step by step

• Contribution before ads: 60 - 20 - 6 - 2 - 4 = 28.
• Contribution margin: 28 / 60, about 0.47.
• Break-even ROAS: 1 / 0.47, about 2.14.

What it means

• Below 2.14 every order from ads loses money, before any other overhead.
• At 3.0, each 100 of spend brings about 40 of margin after the ads are paid for.

Common mistakes

• Using gross margin and forgetting shipping, fees and returns.
• Using platform revenue with a long window, which flatters the result.
• Mixing product groups with very different margins into one number.