Break-Even ROAS Formula: Worked Examples and How to Set Target ROAS

The break-even ROAS formula is 1 divided by your contribution margin: the share of each sale, net of VAT, left once you pay for the product, shipping, payment fees and returns. If 40% is left, break-even ROAS is 1 ÷ 0.40 = 2.5. Every £1 of ad spend must bring in £2.50 of net revenue just to cover itself.

What does break-even ROAS mean?

Break-even ROAS is the return on ad spend at which a campaign neither makes nor loses money on the orders it drives. Below it, each sale costs more in ads than it earns in margin. Above it, the campaign is profitable before fixed costs.

ROAS itself is revenue divided by ad spend. Google's Target ROAS help page shows it as "$5 USD in sales ÷ $1 USD in ad spend x 100% = 500% target ROAS". Break-even ROAS tells you the lowest that number can go before you lose money.

What is the break-even ROAS formula?

Break-even ROAS = 1 ÷ contribution margin. Contribution margin = (net revenue − variable costs) ÷ net revenue.

Net revenue is what the customer pays minus VAT. Variable costs are the costs that rise with every order. Fixed costs such as salaries, rent and software stay out of the formula, because the profit above break-even is what pays for them.

How to calculate break-even ROAS, step by step

1. Take your average order value and remove VAT to get net revenue per order.
2. Subtract cost of goods sold, including inbound freight and duties.
3. Subtract fulfillment: picking, packaging and the outbound shipping you pay for.
4. Subtract payment costs: card, wallet, buy now pay later and cash-on-delivery fees.
5. Subtract a returns allowance: your return rate multiplied by what a return costs you.
6. Divide what is left by net revenue. That is your contribution margin.
7. Divide 1 by the contribution margin. That is your break-even ROAS.

What costs should you include?

Include every cost that grows with each extra order, and nothing that stays the same whether you sell ten orders or ten thousand.

• Cost of goods sold: landed product cost, not the supplier's ex-works price.
• Shipping and fulfillment: courier, packaging and warehouse fees per order, including free shipping you absorb.
• Payment fees: card processing, wallets and buy now pay later providers.
• Returns and failed deliveries: refunded orders, return shipping, unsellable stock and refused cash-on-delivery parcels.
• Discounts: a promo code cuts net revenue while most costs stay the same, so recalculate for every sale event.
• VAT handling: VAT is collected for the tax authority, not earned. Work out margin on net revenue, and check whether your ad platforms receive VAT-inclusive order values.

Break-even ROAS examples in GBP, AED, SAR and QAR

These four examples are illustrative, not customer data. Each shows break-even ROAS on net revenue and on the VAT-inclusive value many store tags send to Google and Meta.

UK example (20% VAT)

• Average order £120 including VAT, so net revenue is £100.
• Variable costs: product £40, shipping and packaging £8, payment fees £2, returns allowance £10. Total £60.
• Contribution £40, so contribution margin is 40%.
• Break-even ROAS on net revenue: 1 ÷ 0.40 = 2.5.
• Break-even on a VAT-inclusive value: £120 ÷ £40 = 3.0.

UAE example (5% VAT)

• Average order AED 420 including VAT, so net revenue is AED 400.
• Variable costs: product AED 160, delivery and packaging AED 35, payment and buy now pay later fees AED 15, returns AED 20. Total AED 230.
• Contribution AED 170, a 42.5% margin. Break-even ROAS: 2.35 on net revenue, 2.47 on the VAT-inclusive value.

Saudi Arabia example (15% VAT)

• Average order SAR 575 including VAT, so net revenue is SAR 500.
• Variable costs: product SAR 200, delivery and packaging SAR 40, payment and COD fees SAR 15, returns and refused deliveries SAR 25. Total SAR 280.
• Contribution SAR 220, a 44% margin. Break-even ROAS: 2.27 on net revenue, 2.61 on the VAT-inclusive value.

Qatar example (no VAT)

• Average order QAR 400, which is also net revenue.
• Variable costs: product QAR 160, delivery and packaging QAR 30, payment fees QAR 12, returns QAR 18. Total QAR 220.
• Contribution QAR 180, a 45% margin. Break-even ROAS: 2.22, with no VAT gap.

The VAT rate sets the gap between true and reported break-even: none in Qatar, 5% in the UAE, 15% in Saudi Arabia and 20% in the UK.

Discounts move the line further. In the UK example, a 20% sitewide discount takes net revenue to £80 while costs stay near £60. Margin falls to 25% and break-even ROAS jumps from 2.5 to 4.0.

What is the difference between break-even ROAS and target ROAS?

Break-even ROAS is the floor where contribution profit is zero. Target ROAS is the number you bid to, set above break-even by the profit you want to keep.

Target ROAS = 1 ÷ (contribution margin − target profit margin). With the UK example's 40% margin and a goal of keeping 10% of net revenue as profit after ads, target ROAS is 1 ÷ (0.40 − 0.10) = 3.33. In Google Ads, you would enter that as 333%.

Setting target ROAS in Google Ads and Meta

• Google Ads: Google's Target ROAS guidance says your target "should be set based on your business goals as well as your historical ROAS performance as a reference", and warns that "setting a target that's too high may limit the amount of traffic your ads may get".
• Meta: the minimum ROAS bid strategy asks for a floor, which Meta's bid strategy documentation defines as total conversion purchase value divided by total spend. Set it too high and delivery can stall.

If your current ROAS is above break-even, start your target near it and step toward your goal.

What is new-customer ROAS?

New-customer ROAS counts only revenue from first-time buyers against ad spend. It shows whether ads are growing your customer base or mostly reaching people who would have come back anyway.

Example, for illustration: £10,000 of ad spend drives £30,000 of net revenue, of which £18,000 comes from new customers. Blended ROAS is 3.0, comfortably above the 2.5 break-even. New-customer ROAS is 1.8, below it.

That is not automatically bad. If a new customer's contribution over 12 months is twice their first order, first-order break-even falls to 2.5 ÷ 2 = 1.25, and 1.8 clears it.

Google Ads supports this with its customer acquisition goal. It can "bid higher for new customers than existing ones" or "only bid for new customers" on Search, Performance Max, Shopping and Demand Gen, using your customer lists and website tags to recognize existing buyers.

ROAS vs POAS: which should you optimize for?

POAS, profit on ad spend, divides contribution profit by ad spend instead of revenue. Break-even POAS is always 1.0, whatever the margin, so it compares products fairly. For illustration:

• ROAS vs POAS on one campaign: £1,000 of spend, £3,000 net revenue and a 40% margin give ROAS 3.0 and POAS 1.2.
• High margin vs low margin at the same ROAS: at ROAS 2.0, a 60% margin product has POAS 1.2 and makes money. A 30% margin product has POAS 0.6 and loses money.

Bidding on POAS means sending profit, not revenue, as the conversion value, which needs product-level costs. Many teams start with ROAS targets per margin band instead.

Why does platform-reported ROAS overstate your real return?

Ad platforms credit themselves with any conversion inside their attribution window. Your real ROAS uses de-duplicated, delivered, net-of-VAT orders.

• Overlap: Meta and Google Ads can both claim the same order.
• View-through credit: an ad that was only seen can still earn the sale.
• Modeled conversions: estimates fill gaps where tracking is blocked.
• Gross values: VAT, shipping charges, and orders later refunded or refused stay in the reported revenue.

Our guide to marketing attribution models and why GA4, Meta and Google Ads disagree explains each gap. Compare platform ROAS with break-even only after adjusting for them.

Break-even ROAS in the UK, UAE, Saudi Arabia and Qatar

The formula is the same everywhere. VAT, payment habits and sale calendars change the inputs.

• UK: the standard VAT rate is 20%, with a 5% reduced rate and a zero rate for items such as "most food and children's clothes", according to GOV.UK. A mixed basket means a blended VAT rate. Budget for buy now pay later fees, and recalculate break-even before Black Friday and Boxing Day discounts.
• UAE: the official u.ae portal says VAT "was introduced in the UAE on 1 January 2018" and "The rate of VAT is 5 per cent." Cash on delivery, Tabby and Tamara fees, and White Friday discounts are the usual margin squeezes.
• Saudi Arabia: the VAT rate rose to 15% from 5%, effective 1 July 2020, as Deloitte Middle East reported. On Salla or Zid stores, include COD fees and refused parcels, and recheck margins for Ramadan, Eid and Saudi National Day offers.
• Qatar: there is no VAT. The General Tax Authority's list of taxes in Qatar includes income, capital gains, withholding and excise taxes, but not VAT, so net revenue equals the price paid.

How Grower helps

Start with the free break-even ROAS calculator on our DTC ecommerce page. It finds the minimum ROAS your ads need to make money, based on your margin and order value.

Then compare channels against that line on real numbers. Grower's Streamline attribution engine de-duplicates conversions from every channel into one count, so each order is counted once. Grower Optimize reads every ad channel plus web and app signals, recommends budget and campaign changes, and pushes each change to the channel once you approve it. Low-risk changes can run on autopilot.

Frequently asked questions

What is a good ROAS?

A good ROAS is any ROAS comfortably above your own break-even, not an industry average. A 3.0 ROAS is strong for a brand with a 50% contribution margin, where break-even is 2.0. The same 3.0 loses money for a brand with a 30% margin, where break-even is 3.33. Calculate your break-even first, then judge every campaign against it.

Should break-even ROAS use revenue with or without VAT?

Calculate margin on revenue without VAT, because VAT belongs to the tax authority. Then check what value your ad platforms receive. If your store sends VAT-inclusive order values, multiply your break-even by 1 plus the VAT rate before comparing: 1.20 in the UK, 1.15 in Saudi Arabia, 1.05 in the UAE, and no change in Qatar.

How does break-even ROAS relate to break-even CPA?

They are two views of the same line. Break-even CPA is the contribution profit per order, the most you can pay in ads to win one sale. In the UK example, each order leaves £40 of contribution, so break-even CPA is £40. Divide net order value by break-even CPA, £100 ÷ £40, and you get the 2.5 break-even ROAS.

Should every campaign have the same target ROAS?

No. Products with different margins need different targets, and prospecting campaigns that win new customers can justify a lower first-order ROAS than retargeting. Group products by margin band, set a target per band, and judge prospecting on new-customer ROAS and repeat purchase value rather than first-order revenue alone.

Want to see which of your channels sit above break-even on de-duplicated numbers? Book a Grower demo for a live walkthrough with a specialist, tailored to your channels and margins.