How it's calculated
- Margin per order = price + shipping charged − unit cost × units − pick and pack − extra picks − packaging − label − card fees − refund reserve
- An option's break-even ROAS = its revenue per order ÷ its margin per order. Its break-even CPA = its margin per order
- The mix's break-even ROAS = (each option's revenue × its orders, added up) ÷ (each option's margin × its orders, added up)
- The mix's break-even CPA = that total margin ÷ total orders
- Your ROAS = total revenue ÷ ad spend. Your CPA = ad spend ÷ total orders. Profit after ads = total margin − ad spend
Every figure on this page comes from Offer Suite's own margin engine, the same code the product uses to forecast each offer's and option's profit and to compute realized margin on orders. Money is computed in whole cents.
Worked example
A coffee brand sells one bag at $40.00, three at $102.00 and six at $192.00, all shipped free. After the coffee, the pick, the box, the label, card fees and a refund reserve, the orders keep $15.36, $48.06 and $94.35. That is the most each can pay for its own customer, and it puts their break-even ROAS at 2.60, 2.12 and 2.03.
In a month the three take 800, 150 and 50 orders: $56,900.00 of revenue that keeps $24,214.50. Dividing one by the other, the mix breaks even at a ROAS of 2.35, or $24.21 an order. Averaging the three options' own figures would say 2.25, as if each sold equally.
The brand spent $18,000.00 on ads for those orders: a ROAS of 3.16 and $18.00 an order, which leaves $6,214.50 after ads. At that cost a single bag, 80.0% of the orders, loses $2.64 each time it sells.
Assumptions
- Every order came from the ads. If some would have come anyway, your real cost per order from ads is higher than ad spend divided by all orders.
- Every order costs the same to win, whichever option it buys. Ad platforms report a cost per purchase, not per option, so each option is charged the mix's CPA.
- Break-even is on the first order. A subscription or a product people reorder can pay back a higher CPA over time; the subscription payback calculator follows the later orders.
- Each option ships in one parcel, so the label, the box and the pick and pack are paid once per order whatever the units.
- The order counts are an example. Your sales report by product or variant gives yours.
- Pick and pack $1.18 per order and $0.20 for each extra item are the defaults of the engine's DTC-US profile, a typical third-party warehouse contract. Use your own contract.
- The shipping label ($7.50) is an assumption for a domestic ground parcel of about a pound. Your carrier account or shipping app has your rate.
- Card processing of 2.9% + $0.30 is Shopify Payments' online rate for a standard card on the Basic plan in the United States. The Shopify Payments fees pages list every plan and country; enter yours.
- The refund reserve (5%) is a share of revenue set aside for refunds. Cost is not reduced by a refund, because the goods were already picked and shipped.
Questions
How do I calculate break-even ROAS?
Divide what an order brings in by what it keeps after every cost: product, pick and pack, packaging, the label, card fees and a refund reserve. With the defaults on this page a $40.00 order keeps $15.36, so its ads break even at a ROAS of 2.60. Below that, the ad spend behind the order is more than the order keeps.
What is break-even CPA?
The most you can pay to win an order without losing money on it, which is the order's contribution margin. Here that is $15.36 for one bag, $48.06 for the three-pack and $94.35 for the six-pack. Break-even ROAS and break-even CPA are the same limit, one stated as a ratio of revenue and the other in dollars per order.
How do I blend break-even ROAS across several products or bundles?
Add up the revenue of all the orders, add up their margin, and divide the first total by the second. With the defaults the mix breaks even at a ROAS of 2.35. Averaging the three options' own figures gives 2.25, because an average counts the six-pack, 5% of orders, as much as the single bag, 80% of them.
My ROAS is above break-even. Is every option profitable?
Not necessarily. At $18,000.00 of ad spend for 1,000 orders the example pays $18.00 an order and earns $6,214.50 after ads. A single bag keeps $15.36, so each of those orders loses $2.64, and the bundles carry the account. A campaign that sells mostly the cheapest option needs that option's own break-even, not the mix's.