Breakeven ROAS: the one number every decision in the account should answer to

Before you call a ROAS "good" or "bad", you need one number: the ROAS at which you break even. Here is exactly how to calculate it, and why it differs so much between brands.

On almost every account I take over, my first question isn’t “what’s the ROAS?” — it’s “what ROAS do you break even at?” Most of the time there’s no answer. That single gap explains most bad decisions: someone kills a campaign at 3.5 ROAS that was making money, and scales one at 5.0 that was eating the margin.

ROAS on its own isn’t a number you can judge. It’s a ratio, and its meaning changes completely with your cost structure.

The idea in one line

Breakeven ROAS is the ROAS at which the profit from an ad exactly equals its cost. Above it you make money, below it you lose money:

Breakeven ROAS = 1 ÷ Contribution Margin %

Contribution margin here means margin after all variable costs — not just cost of goods.

The calculation, step by step

Take an e-commerce brand with realistic numbers for a store in Egypt:

Line item	Value
Average order value (AOV)	EGP 1,200
Cost of goods (COGS)	EGP 600
Shipping (net of what the customer pays)	EGP 70
Packaging and fulfilment	EGP 25
Payment / COD fees	EGP 30
Expected return rate	12%

1 — Contribution margin before returns:

1,200 − 600 − 70 − 25 − 30 = EGP 475

2 — Apply the cost of returns. If 12% of orders come back, you lose that order’s margin and you still eat the return shipping. Assume a fully loaded return cost of EGP 150 per returned order:

475 × 0.88 = EGP 418
418 − (0.12 × 150) = roughly EGP 400

3 — Convert to a percentage:

400 ÷ 1,200 = 33.3% contribution margin

4 — Invert it:

Breakeven ROAS = 1 ÷ 0.333 = 3.0

So for this brand, 3.0 ROAS is zero profit. Anything below 3.0 loses money, however healthy the dashboard looks.

Same formula, completely different answer

Now a second brand: same EGP 1,200 AOV, but COGS of EGP 900 because it imports and the margin is thin. Everything else is identical:

1,200 − 900 − 70 − 25 − 30 = EGP 175
After returns ≈ EGP 136
136 ÷ 1,200 = 11.3%
Breakeven ROAS = 1 ÷ 0.113 = 8.8

Here 8.8 is the breakeven point. So when someone tells you “4 ROAS is fine,” on this brand that figure is a disaster — it loses more than half of every pound spent.

The same ROAS can be excellent on one account and ruinous on another. Without contribution margin, the number is decoration.

Breakeven ROAS vs target ROAS

Breakeven is the zero line. You’re not in business to hit zero, so you set a target above it:

Target ROAS = Breakeven ROAS ÷ (1 − desired profit margin)

If the first brand (breakeven 3.0) wants a 20% net margin on paid revenue:

Target ROAS = 3.0 ÷ (1 − 0.20) = 3.75

That gives you three clear zones:

• Below 3.0 — losing money. Fix it or turn it off.
• Between 3.0 and 3.75 — breakeven to thin profit. Acceptable if the campaign is acquiring customers who will buy again.
• Above 3.75 — this is where scaling belongs.

The details that wreck the calculation

Fixed costs don’t belong in the formula. Rent, salaries and software subscriptions aren’t variable costs, so they stay out of breakeven ROAS. They’re covered by total contribution margin, not by each individual order. Put them in and you’ll produce an inflated number and kill campaigns that were working.

Discounts lower your real AOV. If you run a 15% code on half your orders, your true AOV isn’t 1,200. Calculate it from actual net revenue, not list price.

Attribution inflates ROAS. The figure in Ads Manager runs on an attribution window (7-day click / 1-day view) and counts orders that would have arrived anyway. Comparing that ROAS against a breakeven derived from real revenue means comparing two different things. The practical fix: judge against MER — total revenue ÷ total ad spend — which is the number that tells the truth.

Returns land late. Today’s ROAS is calculated on orders that will see 12% come back over the next two weeks. If you’re evaluating a single week, discount for the expected return rate before you decide anything.

How to actually use it

1. Calculate breakeven ROAS once, on paper, per brand. Revisit it quarterly or whenever pricing or shipping changes.
2. Put it at the top of your reporting. Anyone looking at the numbers should see the line they’re being measured against.
3. Calculate a separate figure per product category when margins differ sharply. A brand selling one line at 60% margin and another at 15% needs two lines, not one.
4. Judge campaigns against that line — not against each other.

Takeaway

Before you open Ads Manager tomorrow, spend ten minutes calculating this number for the brand you’re working on. Most of the decisions you make today — pausing, scaling, shifting budget — are being made on instinct. This number turns them into decisions with a reference line.