The ROAS formula
ROAS = revenue from ads ÷ ad spend. Spend $2,500 on ads that bring in $10,000 of sales and your ROAS is 4, written as 4x, 4:1 or 400%. Google Ads uses the percentage form for its Target ROAS bidding: its own example is $5 of sales for each $1 of ad spend, a 500% target.
Break-even ROAS
Revenue is not what you keep. If you sell a $100 product that costs you $60 to make and ship, only $40 of each sale (a 40% gross margin) is left to pay for the ads. The ads break even when that $40 covers what they cost:
Break-even ROAS = 1 ÷ gross margin. At a 40% margin that is 1 ÷ 0.40 = 2.5x. Below 2.5x, every sale the ads bring in loses money.
| Gross margin | Break-even ROAS | As a percentage |
|---|---|---|
| 20% | 5x | 500% |
| 25% | 4x | 400% |
| 30% | 3.33x | 333% |
| 40% | 2.5x | 250% |
| 50% | 2x | 200% |
| 60% | 1.67x | 167% |
| 75% | 1.33x | 133% |
Count every cost that grows with each sale in the margin: the product, shipping, packaging, payment processing and marketplace fees. Leave them out and the break-even figure comes out too low.
ROAS is not profit: a worked example
A store spends $1,000 on ads and they bring in $3,000 of sales: a 3x ROAS. With a 25% gross margin, those sales leave $750 of gross profit, so the campaign lost $250. With a 50% margin, the same 3x ROAS leaves $1,500 of gross profit and a $500 gain. Same ROAS, opposite results, which is why the calculator asks for the margin.