What is break-even ROAS?
ROAS tells you how much revenue one euro of ad spend brings in. But revenue is not profit. Break-even ROAS is the line: the minimum ROAS you need so a campaign does not lose money.
If your ROAS is above it, the campaign leaves money over. If it is below, every order through that campaign costs you money, even while revenue looks good.
How do you calculate it?
Divide 1 by your profit percentage after order costs.
Example: an order of €100 excluding VAT leaves €40 after cost of goods, shipping, payment fees, commission and returns. That is 40%. Your break-even ROAS is then 1 ÷ 0.40 = 2.5. Every euro of ad spend has to bring in at least €2.50 in revenue.
Do not use your gross margin. It leaves out shipping, payment fees, commission and returns, so your line ends up too low. You then think a campaign makes money while it is costing you.
What to watch out for
Calculate per product or channel, not just with an average. A product with many returns, or a product that leaves little after cost of goods, has a much higher break-even ROAS than your average.
Also watch which ROAS you compare it with. The ROAS in Meta or Google counts revenue that may still be returned, and sometimes counts the same order for several channels. So compare with revenue after returns from your own shop.
In Ecommy
Ecommy calculates break-even ROAS per campaign, product and channel, on your definitions of order costs and returns. That way you see which campaigns drop below it, instead of one average for the whole store.