No. At a 30% margin, break-even ROAS is 1 ÷ 0.30 ≈ 3.33, so at a ROAS of 3 you lose about 10 cents on every euro of advertising, before you account for payment fees, shipping, returns, discounts and contractor costs. Once you add those, the real threshold is usually well above 3.33.
What is break-even ROAS?
Break-even ROAS is the ROAS at which the margin from sales exactly covers the advertising cost. Above it, ads contribute to profit; below it, they lose money.
Break-even ROAS = 1 ÷ contribution margin
Contribution margin is the share of revenue left after all variable costs of an order: the cost of goods, payment fees, shipping and packaging, returns and discounts. If you put only gross margin (revenue minus the cost of goods) into the formula, you get a lower bound, not the real threshold. What ROAS measures is explained in the glossary entry What is ROAS?.
Why is a ROAS of 3 not enough at a 30% margin?
The example is made up and simplified. An online store spends €100 on ads and, at a ROAS of 3, generates €300 of revenue excluding VAT. The cost of goods is 70% of the price.
| Item | Amount |
|---|---|
| Revenue (ROAS 3) | €300 |
| Cost of goods (70%) | −€210 |
| Gross margin (30%) | €90 |
| Ads | −€100 |
| Result | −€10 |
To break even, the store would need €100 ÷ 0.30 = €333.33 of revenue, which is a ROAS of 3.33. A ROAS of 3 is below that line, even though it sounds like a good result.
Which other costs do I need to include?
The cost of goods is already included in the 30% margin. Other costs that raise the threshold:
- Payment fees. Cards, PayPal, cash on delivery. A percentage of every order.
- Shipping and packaging. When you don't charge them to the customer, or charge less than they cost.
- Returns and complaints. The ad platform usually counts the original revenue, even if you later refunded the money.
- Discounts and coupons. If the margin is calculated on the full price, a 10% discount cuts the margin from 30% to 22.2% (price €90, cost of goods €70, margin €20).
- VAT. Calculate ROAS on revenue excluding VAT. If the ad platform receives the order value including VAT, at the Slovenian standard rate of 22% a ROAS of 3 is really 3 ÷ 1.22 ≈ 2.46.
- Fixed advertising costs. Contractor fees, tools, creative production. They are not a percentage of the order, so you add them to ad spend.
The same made-up example with variable costs:
| Item | Share of revenue | Amount at €300 |
|---|---|---|
| Cost of goods | 70% | €210 |
| Payment fees | 2% | €6 |
| Shipping and packaging | 5% | €15 |
| Returns | 3% | €9 |
| Contribution margin | 20% | €60 |
Break-even ROAS = 1 ÷ 0.20 = 5
Now add fixed costs. The store spends €5,000 a month on ads, and contractor and tool costs come to €1,500. The revenue needed is (€5,000 + €1,500) ÷ 0.20 = €32,500, which is a ROAS of 6.5 on ad spend.
| What you include | Margin | Break-even ROAS |
|---|---|---|
| Cost of goods only | 30% | 3.33 |
| + fees, shipping and returns | 20% | 5 |
| + €1,500 fixed costs at €5,000 of ads | 20% | 6.5 |
A store celebrating a ROAS of 3 would need a ROAS of 6.5 just to break even.
What is ROAS on contribution margin?
ROAS on contribution margin tells you how much margin one euro of advertising returns. One number you can read without any conversion.
ROAS on contribution margin = (revenue × contribution margin) ÷ ad spend
Above 1, ads contribute to profit; below 1, they lose money. In the example above, ROAS is 3 × 0.30 = 0.9 on gross margin and 3 × 0.20 = 0.6 on contribution margin. Every euro of advertising returns 60 cents.
When is a ROAS below break-even still acceptable?
When the first purchase brings in a customer who buys again. In that case you don't judge the campaign by first-purchase ROAS, but by the customer's lifetime margin and the LTV:CAC ratio. The condition: you see repeat purchases in your data, not in your hopes. What belongs in the cost of acquiring a customer is explained in the glossary entry What is CAC?.
What are the most common mistakes?
- Gross margin instead of contribution margin. The threshold looks lower than it is.
- ROAS from the ad platform including VAT. The result is inflated by 22% at the standard rate.
- Returns not deducted. The platform shows sales that no longer exist.
- One margin for all products. A campaign selling low-margin products needs a higher ROAS than the store average.
Where should you start?
Enter your data in the ROAS calculator and calculate break-even ROAS with contribution margin, not gross margin. How we track ROAS, CAC and margin for online stores is described on the performance marketing for online stores page. We run ads on Meta and Google: Meta advertising, Google Ads.