On this page
- 01 · Break-even ROAS in one paragraph
- 02 · The formula, worked through for one order
- 03 · Why GST lifts break-even ROAS by 10% in Australia
- 04 · Which costs belong in the margin
- 05 · From break-even to a target ROAS
- 06 · Entering it in Meta and Google Ads
- 07 · Platform ROAS, blended ROAS and which to trust
- 08 · Mistakes we see most often
- 09 · Questions we get about break-even ROAS
- 10 · Sources
Break-even ROAS in one paragraph
Break-even ROAS is the return on ad spend at which the profit from a sale exactly pays for the ads that made it. The formula is 1 divided by your contribution margin, where contribution margin is what is left of each dollar of revenue after product cost, freight, packing, payment fees and refunds. A store keeping 50 cents in every dollar breaks even at a ROAS of 2.0. Below that, every sale the ads bring in loses money.
For Australian stores there is one more step. Shopify tells Meta the order total including taxes, so the revenue in Ads Manager has GST inside it. If your prices include GST, multiply your break-even ROAS by 1.1 before comparing it with the platform: 2.0 becomes 2.2. Our Shopify fees and profit calculator does both steps from your own prices and costs.
The formula, worked through for one order
Take a store with an average order of $132 including GST. GST is one eleventh of a GST-inclusive price, so $12 of that is GST and $120 is revenue the business keeps.
| Line | How we get it | Per order |
|---|---|---|
| Order value including GST | What the customer pays | $132.00 |
| GST | $132 ÷ 11 | $12.00 |
| Revenue before GST | $132 − $12 | $120.00 |
| Product cost | Landed cost of the goods | $42.00 |
| Freight and packing | What you pay to send it | $15.00 |
| Payment fees | Your gateway's rate on the order | $3.00 |
| Contribution before ads | $120 − $42 − $15 − $3 | $60.00 |
| Contribution margin | $60 ÷ $120 | 50% |
| Break-even ROAS, before GST | 1 ÷ 0.50, or $120 ÷ $60 | 2.00 |
| Break-even ROAS, as Ads Manager reports it | $132 ÷ $60 | 2.20 |
The last two rows are the same break-even point measured two ways. The ads can cost up to $60 an order before the sale stops paying. Divide the revenue figure you are comparing against by that $60 and you have the break-even ROAS on that basis.
The same sum gives you break-even CPA: the contribution before ads, $60 here. That is the number we use to set cost controls in our guide to Meta bid cap vs cost cap.
Why GST lifts break-even ROAS by 10% in Australia
Shopify's help centre says events that track an order value use the order's total price, including duties, taxes and discounts. With GST-inclusive prices, the purchase value Meta records is $132 for our example order, while the business keeps $120. Reported ROAS is therefore 10% higher than the return you really earn.
That gap matters most near break-even. A campaign showing 2.1 in Ads Manager looks like it clears a 2.0 break-even. On the same basis as the platform it needs 2.2, so it is losing about $3 on every order.
| Contribution margin | Break-even ROAS before GST | Break-even ROAS on GST-inclusive revenue |
|---|---|---|
| 20% | 5.00 | 5.50 |
| 25% | 4.00 | 4.40 |
| 30% | 3.33 | 3.67 |
| 40% | 2.50 | 2.75 |
| 50% | 2.00 | 2.20 |
| 60% | 1.67 | 1.83 |
Two exceptions. If part of your range is GST-free, such as some basic food, the 1.1 factor overstates the adjustment, so work it out from your own mix of sales. And if your store sends Meta values before tax, there is nothing to add. Check by placing a test order and comparing the Purchase event's value with the order total. Our guide to Meta pixel and Conversions API on Shopify shows where to see that event.
Which costs belong in the margin
Contribution margin counts every cost that rises with each extra order, and nothing that stays the same however many orders you take.
Include
- Landed product cost: the goods plus inbound freight, duty and import charges. Our COGS calculator builds this figure.
- Outbound shipping you pay, net of what customers pay you for it.
- Packing and fulfilment: boxes, inserts, pick and pack fees.
- Payment fees on the order, from Shopify Payments, PayPal or a buy now, pay later provider. Weight each provider's rate by how much of your revenue goes through it.
- Refunds and returns: if 5% of revenue comes back, take 5% off revenue before you work out the margin, and add return freight.
- Per-order app or platform fees, such as transaction fees on a plan without Shopify Payments.
Leave out
- Rent, wages, software subscriptions and agency retainers. They matter for whether the business makes money, but they do not change with one more order, so they belong in your monthly profit target, not in break-even ROAS.
- GST on your costs, if you are registered for GST and claim it back. Use every cost before GST so it sits on the same basis as revenue before GST.
- The ad spend itself. Your margin must be the figure before ads, or the formula counts the ads twice.
From break-even to a target ROAS
Break-even is the floor, not the goal. To set a target, decide how much profit you want from each order and take it off the contribution.
| Number | How we get it | Result |
|---|---|---|
| Contribution before ads | From the worked example | $60 |
| Profit wanted per order | Your choice | $20 |
| Target CPA | $60 − $20 | $40 |
| Target ROAS, before GST | $120 ÷ $40 | 3.00 |
| Target ROAS, on GST-inclusive revenue | $132 ÷ $40 | 3.30 |
Some stores accept a first-order ROAS below break-even because customers come back. That works when you know your repeat rate, not when you hope for it. Our customer retention calculator shows how much a returning customer is worth over time, which tells you how far below break-even you can go on the first order.
Sale periods change the numbers. At 20% off, the same order is $105.60 including GST and $96 before GST. Product and freight stay the same and payment fees fall slightly to $2.40, so contribution drops to $36.60. Break-even ROAS rises from 2.20 to 2.89 on the platform's figures. Plan sale budgets on that higher number. Our BFCM budget and launch plan builds the sale period around it.
Entering it in Meta and Google Ads
Meta. The ROAS goal bid strategy takes a decimal between 0.001 and 1,000. Meta's help centre describes 1.00 as break even, meaning purchase value equal to ad spend. That is revenue break-even, not profit break-even: at 1.00 you have paid for the ads and nothing else. Your real break-even is the 2.20 from the worked example. Meta suggests starting the goal 10 to 20% below your average ROAS and running Highest value for at least two weeks first if you have no history. So if your account averages 3.60, start between 2.88 and 3.24. Then check that the bottom of that range still clears your break-even before you launch. Meta also recommends 50 to 100 or more conversions a week per ad set, and judging ROAS within your attribution setting.
Google Ads. Target ROAS is entered as a percentage: Google's example is $5 in sales for each $1 of spend, a 500% target. Our 3.30 target becomes 330%. Search and Shopping campaigns need at least 15 conversions in the past 30 days to use it. Check whether your Google conversion value includes GST the same way, with a test order.
In both platforms, compare like with like: GST-inclusive targets against GST-inclusive reported value, before-GST targets against values sent before tax.
Platform ROAS, blended ROAS and which to trust
Platform ROAS counts only the sales each platform claims, inside its own attribution window. Meta and Google can both claim the same order, so adding their reported revenue overstates what you earned. Blended ROAS, total store revenue divided by total ad spend, cannot double count. Its weakness is the other way round: it credits ads with sales that would have happened anyway.
We set break-even and target ROAS for each platform for day-to-day bidding, then check every month that blended ROAS clears the same break-even using Shopify revenue. If the platforms say you are profitable and Shopify says you are not, believe Shopify and fix the attribution. Our guide to why marketing revenue reports disagree works through the usual causes.
If you would rather hand this over, we set these targets with you from your real margins as the first step of running your ads.
Mistakes we see most often
- Using gross margin. Product margin alone leaves out freight, fees and refunds, so break-even comes out too low and campaigns look profitable when they are not.
- Comparing a before-GST break-even with GST-inclusive ROAS. The 10% gap is often the whole profit.
- Treating Meta's 1.00 as break-even. It means revenue equals ad spend, which loses money on any product that costs something to make.
- Keeping one target through a sale. Discounts raise break-even, sometimes by a third or more.
- Taking ad spend out of the margin. Then 1 divided by the margin counts the ads twice.
- Setting the ROAS goal at break-even. The goal is an average, so some weeks and some orders land below it. Set the target with room above break-even.
Questions we get about break-even ROAS
What is the break-even ROAS formula?
Break-even ROAS is 1 divided by your contribution margin as a decimal. Contribution margin is revenue minus product cost, freight, packing, payment fees and refunds, divided by revenue. A 40% margin gives a break-even ROAS of 2.5.
Does break-even ROAS include GST in Australia?
It should be on the same basis as the revenue you compare it with. Shopify sends Meta the order total including taxes, so if your prices include GST, multiply your before-GST break-even ROAS by 1.1. A 2.0 break-even becomes 2.2 against Ads Manager.
What is a good ROAS for an Australian store?
There is no single good ROAS, because it depends on your margin. A store with a 60% contribution margin breaks even near 1.8 on GST-inclusive revenue, while one with a 25% margin needs 4.4. Work out your own break-even, then set a target above it for the profit you want.
Is Meta's ROAS goal of 1.00 break-even?
Only in revenue terms. Meta describes 1.00 as purchase value equal to ad spend. Your product, freight and fees still have to be paid from that revenue, so your profit break-even is higher.
What is the difference between break-even ROAS and target ROAS?
Break-even ROAS is the return where ads use up all the profit in a sale. Target ROAS is the return that leaves the profit you want per order. With $60 of contribution and a $20 profit goal, the target CPA is $40 and the target ROAS on a $132 order is 3.3.
Should I use break-even ROAS for new or returning customers?
Use it for all customers to start. If you know your repeat purchase rate, you can accept a lower first-order ROAS for new customers, because the second and third orders carry no acquisition cost. Base that on measured repeat rates, not on hopes.