The Break-even ROAS Formula
The Break-even ROAS Formula
Where
Break-even ROAS is the minimum ROAS needed to cover all costs without making a profit or loss. Any ROAS above this threshold means you're making profit; below means you're losing money.
Alternative Formula
Where
Formula Derivation: Why Does This Work?
Understanding why Break-even ROAS = 1 ÷ Profit Margin helps you apply it correctly. Let's derive it from first principles.
Step 1: Define Break-even Point
At break-even, your ad revenue equals all associated costs:
Ad Revenue = Ad Spend + Product CostStep 2: Express in Terms of ROAS
We know ROAS = Revenue ÷ Ad Spend, so Revenue = ROAS × Ad Spend:
ROAS × Ad Spend = Ad Spend + Product CostStep 3: Factor in Profit Margin
Product Cost = (1 - Profit Margin) × Revenue. Substituting and solving:
ROAS = 1 ÷ Profit MarginThis elegant formula shows that your break-even ROAS is simply the inverse of your profit margin. Higher margins mean lower break-even ROAS, and vice versa.
Variables Explained
To use the break-even ROAS formula correctly, you need to understand each variable:
| Variable | Meaning | How to Calculate |
|---|---|---|
| Profit Margin | Percentage of revenue that is profit | (Selling Price - Cost) ÷ Selling Price |
| Selling Price | Price customers pay | Your product/service retail price |
| Cost (COGS) | Cost of goods sold | Production + Shipping + Direct costs |
Use decimal form for profit margin in the formula. For example, 30% = 0.30
Formula Examples
Let's see the break-even ROAS formula in action with real-world industry scenarios:
SaaS / Digital Products
Margin: 70% (0.70)
Calculation: 1 ÷ 0.70
Digital products have near-zero marginal cost. A 1.43× ROAS is easily achievable—focus on volume.
Fashion & Apparel
Margin: 50% (0.50)
Calculation: 1 ÷ 0.50
Typical retail margins. 2× ROAS is the industry standard for profitable e-commerce campaigns.
Consumer Electronics
Margin: 20% (0.20)
Calculation: 1 ÷ 0.20
Low-margin products require exceptional ROAS. Consider bundling or upsells to improve margins.
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