In plain words
Break-even ROAS is the return on ad spend at which advertising neither earns nor loses. At that point the margin on the orders the ads produced equals what the ads cost.
It is set by the offer. An order that keeps half its revenue breaks even at a ROAS of 2. One that keeps a quarter needs 4. So every discount, gift and free-shipping rule raises the ROAS a campaign must reach. Margin given away to win the order is margin that can no longer pay for the click.
Formula
- Break-even ROAS = 1 ÷ contribution margin ratio
- The same thing: order revenue ÷ the order's contribution margin
Worked example
The $40.00 coffee bag keeps 38.4% of its revenue. The engine's ceiling for acquiring that order is $15.36, its whole margin, which is a ROAS of 2.60.
Put the bag on sale at 20% off and the order keeps 25.0% of $32.00. The same campaign now has to reach a ROAS of 4.01 just to break even.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
Break-even on the first order is not break-even on the customer
This figure treats the order as the whole relationship. For a subscription or a product people reorder, later orders also repay the ads, so a campaign below first-order break-even can still be worth running. That case needs lifetime value and a payback period. The break-even ROAS is the first-order figure only.
Using it
Work it out per offer, at the price customers really pay after discounts. Give each campaign the figure for the offer it sells. When an offer changes, the break-even changes with it: a sale that lifts conversion also lifts the ROAS the ads must clear, and the two can cancel out.