Before judging a campaign, know the break-even ROAS — the ad return at which the margin exactly covers the spend. It’s simply one divided by your gross margin.
The example
40% gross margin.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Gross margin | 40% |
| 3 | Break-even ROAS | → 2.5x |
The formula
The formula:
How it works
How it works:
- Break-even ROAS =
1 / gross_margin— the return where ad margin equals ad spend. - At a 40% margin, you need 2.5× just to break even on the product.
- A target ROAS to hit a profit margin on ads is
1 / (gross_margin - target_ad_margin). - Compare every campaign’s actual ROAS to this floor, not to 1.
Set the target above break-even. Break-even ignores overhead, so a campaign at exactly 2.5× covers product cost but nothing else. Set a target ROAS that leaves room for fixed costs and profit — e.g. require 3.5× when break-even is 2.5× — and the sheet flags underperformers automatically with an IF against the target.
Try it: interactive demo
Gross margin, then actual ROAS.
Variations
Target ROAS for profit
Leave room:
Profitable flag
vs break-even:
Max CPA from margin
Spend ceiling:
Pitfalls & errors
Break-even ignores overhead. Set targets above it to cover fixed costs and profit.
Margin as decimal. 40% is 0.40 in 1/margin.
Use contribution margin. Include all variable costs (COGS, shipping, fees) in the margin.
Practice workbook
Frequently asked questions
How do I calculate break-even ROAS in Excel?
How do I set a target ROAS that's actually profitable?
Is a ROAS above break-even enough?
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