Break-Even ROAS: The Number to Know Before You Spend Another Euro on Google Ads

"What ROAS should we aim for?"

It is one of the first questions ecommerce founders ask us, and the honest answer is: it depends on a number most brands have never calculated. Their break-even ROAS.

A ROAS of 3 can be profitable for one store and quietly lose money for another. Without break-even, a ROAS target is a guess that looks like a strategy.

What break-even ROAS actually means

Break-even ROAS is the point where your ad spend eats exactly all the profit from the sale. Above it, every order makes money. Below it, every order costs you money, no matter how good the dashboard looks.

The formula is simple:

Break-even ROAS = 1 / effective margin

The hard part is the word "effective."

Step 1: Find your effective margin, not your product margin

Most brands use their product margin: selling price minus cost of goods. That number is always too optimistic, because it ignores everything that happens after the order.

Your effective margin is what is left after:

• Cost of goods - what the product costs you
• Shipping and fulfilment - picking, packing and delivery
• Payment fees - what your payment provider takes per order
• Returns - the orders that come back and the cost of handling them

Here is an illustrative example. An order worth €100 excluding VAT:

• Cost of goods: €40
• Shipping and fulfilment: €8
• Payment fees: €2

That leaves €50, a 50% margin. Break-even ROAS: 1 / 0.50 = 2.0.

Now add returns. If returns bring your margin down to 45%, break-even becomes 1 / 0.45 = 2.22.

Every cost you add pushes break-even up. That is not bad news. That is the real number finally showing up.

Step 2: Check which revenue Google Ads is reporting

When a brand gives us their own break-even figure, it is almost never calculated on the exact revenue Google Ads reports. This quietly breaks everything.

Is the conversion value in Google Ads including VAT or excluding it?

At break-even, you can spend your full €45 margin on ads for that order. If Google Ads reports €121 for the same order (including 21% VAT), your reported ROAS looks 21% better than it really is. So your break-even on that basis is not 2.22. It is:

€121 / €45 = 2.69

Same store, same margin, a completely different target. A break-even calculated on the wrong revenue basis is wrong by exactly the VAT rate, while looking perfectly finished.

Before you trust any ROAS number, check whether the value you track includes VAT, shipping or discounts, and calculate break-even on that same basis.

Step 3: Set a target above break-even

Break-even tells you where you stop losing money. It does not tell you where to aim.

Your target comes from one decision: how much of your margin are you willing to spend to win a customer? In the example, if you want to keep €10 of the €45 margin, you can spend €35 per €100 order. Your target ROAS is then €100 / €35 = 2.86.

How much to keep is a business decision, not a Google Ads setting:

• Growing and want market share? You might accept a target close to break-even, because a new customer is worth more over time than on their first order.
• Taking profit out of the business? Your target sits well above break-even.

Neither is wrong. But you have to choose it on purpose.

Step 4: Check your budget against your target

Once you have a target, do one quick sanity check on your budget.

Say your target ROAS is 3.0 and your average order value is €100 (again, illustrative). Each order can cost about €33 in ad spend. A €10,000 monthly budget then buys roughly 300 orders a month.

If your goal needs 1,000 orders, that budget cannot get you there, and it is better to know that now than to find out in month three.

Why your break-even will move

Break-even is not a number you set once. As you add better data, like your real fulfilment costs or return rates per product, it usually goes up. That is not a correction. That is your model getting more honest.

A few rules we stick to:

• Never estimate a margin you do not have. Get the real numbers first.
• Do not take a break-even figure at face value. Always check which revenue it was calculated on.
• Write it down. Break-even, its revenue basis and your target should be recorded, so nobody has to recalculate from memory.

Know your number before you scale

Every scaling decision in Google Ads, from bid strategy to budget to which products to push, depends on this one number. Get it wrong and every optimisation after it points in the wrong direction. It is also the first thing we check in Stage 0 of our Scaling Framework.

Not sure your break-even is calculated on the right basis? Our free Strategic Google Audit checks exactly that, along with your tracking and account structure, and tells you what to fix first.