Break-even ROAS: how to know if your online store’s advertising is really profitable
Break-even ROAS equals 1 divided by your profit margin per order. In a store that keeps 25% profit from each order, every ₪1 in advertising has to bring back at least ₪4 in sales just to break even. Our target: a ROAS of at least 6, and higher for low-margin stores.
What ROAS is, and why it misleads
ROAS (Return On Ad Spend) is total sales from advertising divided by ad spend. A ROAS of 3 means every ₪1 in advertising brought ₪3 in sales.
The problem: ROAS measures sales, not profit. ₪3 in sales in a store with a 20% margin leaves only ₪0.60, a loss of ₪0.40 on every shekel of advertising. So whether a ROAS is “good” or “bad” depends entirely on your store’s profitability.
The formula: break-even ROAS = 1 ÷ profit margin
The profit margin is what’s left from an average order after all variable costs, before advertising.
| Profit margin per order | Break-even ROAS | Recommended target (at least 6) |
|---|---|---|
| 50% | 2.0 | 6.0 |
| 40% | 2.5 | 6.0 |
| 30% | 3.3 | 6.0 |
| 25% | 4.0 | 6.0 |
| 20% | 5.0 | 7.1 |
Below break-even ROAS, every sale from advertising loses money. We aim for a ROAS of at least 6: that way advertising takes up to about 17% of sales, and real profit remains. In stores with especially low margins, the target rises to break-even ROAS divided by 0.7.
What must go into the profit margin
The most common mistake is to calculate “sale price minus product cost” and stop there. For the number to be real, also subtract:
- Product and packaging cost
- Shipping, including free shipping you absorb
- Payment processing and platform fees
- Returns and exchanges, at your average rate
- VAT, if the sales in the report include it
A store that thinks it makes 40% often finds that after all of these, 25% is left. That’s the difference between a break-even ROAS of 2.5 and 4.
A full example
(Illustrative numbers, before VAT.) An average order of ₪300:
| Item | Amount |
|---|---|
| Average order value | ₪300 |
| Product and packaging cost | ₪120− |
| Shipping | ₪30− |
| Payment processing and platform fees | ₪9− |
| Returns (average) | ₪6− |
| Profit before advertising | ₪135 (45%) |
The store’s break-even ROAS is 1 ÷ 0.45, about 2.2. Our target is a ROAS of 6. A campaign with a ROAS of 2.5 looks reasonable in the report, but is only slightly above break-even.
Checking the platform’s ROAS against your actual sales
The ROAS that Meta and Google show is based on the sales they attribute to themselves, and each platform also claims sales that would have happened without it. So it’s worth looking at a simple number from your actual sales as well:
MER = total store sales ÷ total spend on all advertising. If ROAS in the platforms goes up and MER stays flat, advertising isn’t really adding sales. We explain this in depth in the article on the gap between the report and actual sales.
When it’s OK to go below target
- Repeat customers: if a customer buys again on average, the first order can run at a lower margin. Provided you measure it rather than assume it.
- Launches and tests: during a learning period limited in time and budget.
- Clearing stock: when the goal is cash flow, not profit.
In every other case, ROAS below break-even is money leaving the business. To work out your minimum ROAS, use the calculator on the homepage and choose “Online store”.
Want to know where you stand? We’ll check the numbers against your account, free of charge.
Get a fit checkFrequently asked questions
What is a good ROAS?
There’s no good ROAS in general. A good ROAS is one that’s higher than your break-even ROAS, which depends on your profit margin: in a store with a 50% margin a ROAS of 3 is profitable, and in a store with a 20% margin the same ROAS loses money.
What’s the difference between ROAS and MER?
ROAS is measured by the sales a platform attributes to itself. MER is total store sales divided by total ad spend, so it doesn’t depend on how each platform counts.
What’s the difference between ROAS and ROI?
ROAS measures sales relative to ad spend. ROI measures net profit relative to investment. A ROAS of 4 can be a negative ROI if the profit per order is below 25%.
Founder of SMOLANSKI Media. 14 years in advertising management, 10 of them at Israel’s leading media and advertising agencies.
Related services: Facebook and Instagram campaign management · Google campaign management
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