What is ROAS?

What is ROAS?

ROAS (Return on Ad Spend) is a performance metric that Marketer use to evaluate campaign performance. It is calculated by dividing "the revenue generated from ads" by "associated costs", such as ad spend and shipping.

Example:

• Ad spend: $100
• Revenue earned: $300
• ROAS: 300÷100 = 3.0

What is Break-Even ROAS?

Break-even ROAS represents the minimum ROAS required for your campaigns to cover costs without making a loss. In addition to ad spend, the costs should include shipping and COGS (costs of goods sold).

Why It Matters

• Below Break-Even ROAS: Ads performing below this threshold are underperforming, and will be automatically turned off by our system.
  • New ads go through a learning phase, and the ROAS is usually below the break-even target initially. Our system uses other metrics, such as CTR (click-through rate), to measure ad performance in the learning phase.
• Above Break-Even ROAS: Ads exceeding this threshold are profitable, and our system might recommend you to increase the ad budget.
• Accuracy Is Critical: Setting the correct break-even ROAS prevents good ads from being turned off and ensures poor-performing ads don’t stay active unnecessarily.

How to Calculate Your Break-Even ROAS

Formula: 1 ÷ Profit Margin (decimal)

Example:

• Profit margin is 40% (decimal is 0.40)
• ROAS : 1÷0.4 = 2.5

How to Find Your Profit Margin in Shopify

If you have added profit margins to your products in Shopify and your store has an order history, find your profit margins here:

1. Go to Shopify Admin → click Analytics → Reports.
2. Click Category → Profit Margin → Gross Profit by Product.
3. View the Gross Margin summary.

How to Calculate Profit Margin Manually

Formula: Profit Margin = 1 - (COGS + other costs) ÷ AOV

AOV: Average order value (total revenue ÷ total number of orders).

COGS: Cost of goods sold per product.

Other Costs: Average shipping costs or additional expenses per order.

Example

• AOV = $50
• COGS = $20
• Shipping = $5

Profit margin = 1 - ((20+5) ÷ 50) = 0.50 or 50%

Break-even ROAS = 1 ÷ 0.50 = 2.0

For New Stores Without Order History

If you have no order history, estimate the profit margin temporarily by selecting a product that represents the store (average sales price, average product cost).

Profit margin = 1 - (product costs ÷ sales price of product)

Break-even ROAS = 1 ÷ profit margin

Example

• Product Cost = $20
• Sales Price = $50
• Shipping Costs = $5

Profit margin = 1 - ((20+5) ÷ 50) = 0.50

Break-even ROAS = 1 ÷ 0.50 = 2.0