Ad platforms love to show you ROAS, or return on ad spend. Spend $100, get $300 in sales, and the dashboard proudly tells you your ROAS is 3. It looks like you tripled your money.
You didn't. That $300 is sales, not profit. Out of it you still pay for the products, shipping, payment fees and everything else. Whether a ROAS of 3 is good or terrible depends entirely on your margins. The number you need is your break-even ROAS.
The short version
- ROAS = revenue from ads ÷ ad spend.
- Profit before ads = order value − product cost − shipping − payment fees − other costs per order.
- Break-even ad spend per order = profit before ads.
- Break-even ROAS = order value ÷ profit before ads.
- Your target ROAS should sit above break-even, depending on how much profit you want left.
Start with profit before ads
Everything begins with one number: how much you make on an order before you pay for ads. Some people call it contribution margin. Let's use a real example from a skincare store on Shopify.
| Per order | Amount |
|---|---|
| Selling price (free shipping) | $49.00 |
| Product cost | −$14.00 |
| Shipping the order | −$6.50 |
| Card fee, Shopify Basic (2.9% + 30¢) | −$1.72 |
| Packaging and apps | −$1.20 |
| Profit before ads | $25.58 |
That $25.58 is the most this store can spend on ads to win one order without losing money. Spend $25.58 and you break even. Spend more and every order costs you money. In the Shopify profit calculator this shows up as "Break-even ad spend per order".
Turn it into a break-even ROAS
Ad platforms don't talk in "cost per order" as much as they talk in ROAS, so it helps to convert:
So for this product, any campaign with a ROAS above 1.92 is making some profit, and anything below it is losing money. A ROAS of 3 is comfortably profitable here. For a product with thinner margins, it might not be.
Why the same ROAS can mean profit or loss
Here's how break-even ROAS changes with the share of each order you keep before ads:
| Profit before ads, as % of order | Break-even ROAS |
|---|---|
| 70% | 1.43 |
| 52% (our skincare example) | 1.92 |
| 40% | 2.50 |
| 30% | 3.33 |
| 25% | 4.00 |
| 20% | 5.00 |
A product where you keep 25% before ads needs a ROAS of 4 just to break even. If you've been happy with a ROAS of 3 on that product, you've been paying to sell it.
Setting a target ROAS
Breaking even isn't the goal. You want profit left over. So decide how much of each order you want to keep after ads, then work out the ROAS that leaves that much.
For the skincare store:
- Target 10% net margin ($4.90 profit): max ad spend $20.68, target ROAS 2.37
- Target 20% net margin ($9.80 profit): max ad spend $15.78, target ROAS 3.11
Right now the store spends about $12 per order on ads, which is a ROAS of 4.08. That leaves $13.58 profit per order, a 27.7% net margin. Healthy. If ad costs rise towards $20, the store is close to its 10% floor and should start cutting the weaker campaigns.
Things that change your break-even point
- Returns and refunds. If 5% of orders come back, your real profit per order is lower. Take an average return cost out of your profit before ads.
- Discounts. A 15% off code lowers the order value but not your costs. Break-even ROAS goes up.
- Bigger orders. Bundles and free shipping thresholds raise the order value, while some costs (like the 30¢ card fee and packaging) stay almost the same. Break-even ROAS usually goes down.
- Repeat customers. If many first-time buyers come back without more ads, you can afford to spend more on the first order. Only do this if you have real repeat data, not a hope.
Platform ROAS vs real ROAS
Ad platforms count sales in their own way, and they often take credit for sales that other channels helped with. Two platforms can both claim the same order. So the ROAS in each dashboard is usually a bit higher than reality.
A simple check is to look at your whole store once a month: total sales divided by total ad spend across every platform. Some people call this blended ROAS or MER. If that number is below your break-even ROAS, the store is losing money on ads overall, whatever each dashboard says.
What about Etsy and eBay ads?
The same thinking works for marketplace ads. With Etsy Ads, divide your Etsy Ads spend by the orders it brought in, and compare that with your profit per order after Etsy fees. With Etsy Offsite Ads or eBay Promoted Listings, you pay a percentage of each sale instead, so check that the percentage is well below your margin. Our guides on Etsy Offsite Ads and eBay Promoted Listings go through those in detail.
A worked example for an Etsy shop
Take a candle that sells for $35 with $5 shipping, a $40 order in total. After Etsy's listing, transaction and payment processing fees, plus $9 for materials and $4.50 for the label, the seller keeps $22.25. That's the profit before ads.
So the most this seller can spend on Etsy Ads to win one order is $22.25, and the break-even ROAS is 40 ÷ 22.25 = 1.80. If Etsy Ads cost $30 in a week and brought in three orders, that's $10 per order and a ROAS of 4. Comfortably profitable. If the same $30 brought in one order, the ads ate more than the whole profit on that sale. You can get the profit figure for any listing from the Etsy fee calculator.
A quick checklist
- Work out profit before ads for each main product.
- Divide order value by that profit to get break-even ROAS.
- Pick a target net margin and work out your target ROAS.
- Compare each campaign with the target, not with a number you read online.
- Check blended ROAS for the whole store every month.
Bottom line
A ROAS number means nothing without your margins next to it. Find your profit before ads, turn it into a break-even ROAS, and set your targets from there. Put your numbers into the Shopify profit calculator to see your break-even ad spend per order straight away.
Frequently asked questions
What is a good ROAS for an online store?
There's no universal good ROAS. It depends on your margins. A store that keeps 60% of each sale before ads breaks even at a ROAS of about 1.7, while a store that keeps 25% needs a ROAS of 4. Work out your own break-even ROAS first, then set a target above it.
How do I calculate break-even ROAS?
Divide your order value by the profit you make on that order before ad costs. For example, if an order is worth $49 and you keep $25.58 after product cost, shipping, payment fees and other costs, your break-even ROAS is 49 ÷ 25.58 = 1.92.