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Break-even ROAS: is your ad spend losing money?

ROAS — return on ad spend — is the number most Shopify stores watch to judge their ads. On its own, it lies. A ROAS that looks healthy can still lose money, because ROAS ignores what the product actually costs you.

What ROAS is

ROAS is simply ad revenue divided by ad spend. A 3x ROAS means you made $3 in revenue for every $1 spent on ads. It says nothing about profit.

What break-even ROAS is

Break-even ROAS is the point where your ad revenue exactly covers the product cost plus the ad spend. Above it you make money; below it every sale from ads loses money — no matter how good the raw ROAS looks.

The formula

Break-even ROAS = order value ÷ contribution margin

Where contribution margin is your order value minus product cost, fees and shipping. The thinner your margin, the higher the ROAS your ads must hit before they make a cent.

Why "3x" can still lose money

Say a $50 order has $30 of product cost, fees and shipping. Your contribution is $20, so your break-even ROAS is 50 ÷ 20 = 2.5x. Now say a different product has only $10 of contribution — its break-even ROAS is 5x. A 3x ROAS is profitable on the first product and a loss on the second. The same ROAS, two opposite outcomes.

How to use it

Calculate your break-even ROAS per product, then compare it to your actual ad ROAS. Anything running below its break-even point is ad waste. Find your number with the break-even ROAS calculator, and see the other ways ads leak profit in types of profit leaks.