ROAS (return on ad spend) is revenue from ads divided by what you spent on those ads: $12,000 in sales on $5,000 of spend is a 2.4x ROAS, or 240%.
Break-even ROAS is 1 divided by your contribution margin before ad costs, so a store that keeps 50% of each sale after product, shipping and fees breaks even at 2.0x.
Anything above break-even makes money on the first order; anything below loses it.
What the ROAS calculator works out
The calculator above gives you two numbers. The first is your actual ROAS from ad spend and attributed revenue.
The second is your break-even ROAS, worked out from your order economics.
Put them side by side and you know whether your ads are paying for themselves.
Google defines ROAS the same way in its Target ROAS bidding docs: conversion value divided by ad spend, times 100%.
Google's example is a shoe store that wants $5 in sales for every $1 of spend, which is a 500% target ROAS.
The formulas
| Metric | Formula |
|---|---|
| ROAS (multiple) | Revenue from ads / Ad spend |
| ROAS (percent) | Revenue from ads / Ad spend x 100% |
| Contribution margin | (AOV - product cost - shipping and fulfillment - payment fees) / AOV |
| Break-even ROAS | 1 / Contribution margin |
| Break-even CPA | AOV x Contribution margin |
| Profit after ads | Revenue x Contribution margin - Ad spend |
Break-even ROAS and break-even CPA are the same idea from two angles.
One says how much revenue each ad dollar must bring back; the other says how much you can pay to get one order.
The inputs you need
- Ad spend: what the platform charged for the period, without agency fees (add those later if you want a fully loaded number).
- Revenue from ads: attributed revenue for the same period, net of discounts and sales tax or VAT.
- Average order value: use the AOV calculator if you don't have it handy.
- Variable costs per order: product cost, pick, pack and shipping, payment processing, and an allowance for returns.
Worked example
A skincare store spends $5,000 on paid social in a month.
The ad platform credits it with 150 orders and $12,000 in revenue, so AOV is $80.
Each order costs $28 in product, $9 in shipping and fulfillment, and $2.40 in payment fees (3%).
That leaves $40.60 per order before ads, a contribution margin of 50.75%.
| Step | Calculation | Result |
|---|---|---|
| ROAS | $12,000 / $5,000 | 2.4x (240%) |
| Break-even ROAS | 1 / 0.5075 | 1.97x |
| CPA | $5,000 / 150 | $33.33 |
| Break-even CPA | $80 x 0.5075 | $40.60 |
| Profit after ads | $12,000 x 0.5075 - $5,000 | $1,090 |
The campaign makes $1,090 on first orders. It has headroom, but not much: a 2.4x ROAS sounds healthy until you see break-even sits at nearly 2.0x.
How to read the result
If your ROAS is below break-even, every first order loses money.
That can still be fine for a subscription or a product people reorder often, as long as you know the payback.
Check that with the subscription LTV calculator before you decide.
If ROAS is above break-even, the gap is your margin of safety.
Small gaps disappear fast when CPMs rise in Q4 or when returns come in later.
Why conversion rate moves ROAS
Most people try to raise ROAS by changing bids, audiences and creative.
The landing page is the other half. At the same traffic cost, a page that converts 10% better raises ROAS by 10%.
In the example, a 10% conversion rate lift takes revenue to $13,200 and ROAS to 2.64x.
Profit after ads goes from $1,090 to $1,699 with no extra spend.
That is why it pays to track the steps from ad click to order with a conversion funnel and fix the leaks.
Tests in our database show the size of the effect:
- SplitBase built dedicated paid landing pages for Snow, the teeth whitening brand, instead of sending ad traffic to the homepage and product pages. The result was up to +25% Facebook ROAS and +23% conversion on affiliate traffic.
- Kasper Dolk sent cold ad traffic to a pre-sell bridge page instead of the product page, and CAC fell from €22.10 to €5.37.
- Peter Christensen launched advertorial-style landing pages for paid traffic and cut CPA by 35% at the same spend.
- Oliver Kenyon added the founder story to the product page to match the ads, which lowered CPA by 15%.
- Vasta tested a story-led advertorial against a product page for BJJ Fanatics and got +71.8% revenue per visitor.
@oliverkenyon
SplitBase
Vasta
@kasper_dolk
@peterac_The common thread is ad-to-page message match and advertorial and listicle pages for cold traffic.
Track revenue per visitor in these tests, because it captures both conversion rate and AOV, the two things that drive ROAS. You can browse more in all tests.
Common mistakes
- Using gross margin only. Product cost alone leaves out shipping, fees and returns, so break-even comes out too low and losing campaigns look profitable.
- Counting tax and shipping as revenue. Many stores pass gross order value to the ad platform. Use net revenue on both sides of the comparison.
- Trusting platform ROAS alone. Each ad platform credits itself under its own attribution rules, so the totals across platforms can add up to more than your real sales. Compare against total revenue divided by total ad spend.
- Ignoring returns. A category with 20% returns needs a return allowance in its costs, or ROAS will look better than the bank balance.
- Judging a landing page test on ROAS from a few days of spend. Ad delivery shifts day to day. Split the traffic on the site and check the result with the significance calculator.