By Afef AyedOn this page
The short answer
Break-even ROAS is 1 divided by your margin: at a 25% margin, each euro of ads must bring 4 euros of sales, a 400% ROAS. Set your target above it by the profit you want to keep. Use the margin after product cost, shipping and fees, not the markup.
Break-even ROAS, in one line
ROAS is the conversion value a campaign brings for each euro it spends. A sale pays for its ads when the margin on it covers what the ads cost.
Break-even ROAS = 1 ÷ margin
At a 25% margin: 1 ÷ 0.25 = 4, a 400% ROAS.
Below that line, Google Ads still reports sales. Each one simply costs more in ads than it earns.
From break-even to a target
A target at break-even buys sales that make no profit. That can be a choice, for example to win first orders. Usually you want to keep something.
Target ROAS = 1 ÷ (margin − profit you keep)
At a 40% margin, keeping 10% of revenue: 1 ÷ 0.30 = 3.33, a 333% ROAS.
The profit here is a share of revenue, left after the ads are paid. The higher you set it, the fewer auctions the bidding can win.
Which margin to use
- After product cost, shipping and payment fees. A product sold at 2.5 times its cost is not a 60% margin once delivery is paid.
- After discounts and returns. A product returned one time in five earns less than its price tag says.
- Per product group when margins differ. One target over a 15% line and a 60% line overpays for one and starves the other.
- Without VAT on both sides. If conversion values include VAT, ROAS looks better than the margin allows.
When ROAS is the wrong goal
ROAS judges each sale on its own. That misleads in three cases.
- Customers who come back. A first order at a loss can pay off with the second. Judge those campaigns on new customers and what they buy later.
- Too few conversions. A value target needs enough sales to learn from. With a handful a month, the result is mostly luck.
- Lead businesses. A form has no price. Use cost per lead, or import the sales your leads become.
What Optizads checks
Oppy asks for your margin when you set up an account. The audit flags a ROAS target set without a known margin, and prints the margin at which that target breaks even. You see at once whether it is ambitious or quietly losing money.