ROAS Formula: Calculate Break-Even and Target ROAS
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Last Updated:
Category: Ad Measurement
Authors: Shusaku Yosa
Calculate ROAS by dividing revenue attributed to advertising by ad spend. For example, $10,000 in revenue divided by $2,000 in spend gives 5x, or 500%.
That calculation describes revenue efficiency. To decide whether the result is acceptable, calculate how much you can afford to spend after product costs, other relevant expenses, and your required profit.
Start with consistent inputs
Use the same currency and tax basis. Define whether revenue means orders, paid orders, or recognized revenue, and how returns are handled. Match advertising costs to an appropriate revenue observation window.
For multiple campaigns, calculate ROAS from totals. In this hypothetical example, averaging the two percentages would give the wrong answer.
Campaign | Revenue | Spend | ROAS |
|---|---|---|---|
A | $5,000 | $1,000 | 500% |
B | $9,000 | $3,000 | 300% |
Combined | $14,000 | $4,000 | 350% |
The combined result is 350%, not the unweighted average of 400%.
Calculate break-even ROAS
Break-even ROAS = 1 ÷ pre-ad contribution margin
Enter the margin as a decimal. Multiply by 100 for a percentage result. If you use gross margin rather than contribution margin, the calculation excludes costs not captured in gross profit.
Margin available before advertising | Break-even multiple | Break-even percentage |
|---|---|---|
20% | 5.00x | 500% |
30% | 3.33x | About 333% |
40% | 2.50x | 250% |
50% | 2.00x | 200% |
These thresholds cover only the costs included in the calculation. They do not automatically cover fixed overhead. A ROAS of 100% spends the entire revenue amount on advertising, leaving nothing for product or operating costs.
Include the profit you want to retain
Consider this hypothetical order cohort:
Item | Amount |
|---|---|
Revenue | $10,000 |
Product costs | $6,000 |
Shipping, payment fees, and other included costs | $1,000 |
Contribution before advertising | $3,000 |
Required profit after advertising | $1,000 |
Maximum ad spend | $2,000 |
The break-even target is approximately 333%. The target that retains $1,000 is 500%. Break-even and profit targets are different.
Allowable ad spend = revenue − included non-ad costs − required profit
Target ROAS = revenue ÷ allowable ad spend
If allowable spend is zero or negative, revisit the commercial assumptions before increasing advertising. If an agency fee is a proportion of media spend, account for that relationship: with contribution G, required profit P, and fee rate r, allowable media spend is (G − P) ÷ (1 + r).
Build a simple spreadsheet
Row | Column A | Column B input or formula |
|---|---|---|
2 | Attributed revenue | 10000 |
3 | Product costs | 6000 |
4 | Other included costs | 1000 |
5 | Actual ad spend | 2000 |
6 | Required profit | 1000 |
7 | Actual ROAS | =B2/B5 |
8 | Profit after ads | =B2-B3-B4-B5 |
9 | Allowable spend | =B2-B3-B4-B6 |
10 | Target ROAS | =B2/B9 |
Format B7 and B10 as percentages. Do not also multiply those formulas by 100. If B5 or B9 is zero or negative, flag the result rather than performing the division.
Common calculation mistakes
Do not add platform-attributed sales without checking overlap. Do not combine a per-customer lifetime value with total campaign spend: either compare total cohort revenue with total cost or align both measures per customer.
For products with different margins, sum their actual contribution amounts before calculating a blended margin. A simple average of product margin percentages ignores the sales mix.
For subscriptions or repeat purchases, state the cohort and observation window. Separate realized revenue from forecasts, and track cash recovery as well as eventual returns.
Google's conversion reporting documentation explains the platform's value measures. For decisions beyond the formula, see what ROAS measures and ROAS versus ROI and CPA.
