In short
A good ROAS is one comfortably above your break-even ROAS, and break-even is 1 ÷ your gross margin. At a 40% margin it is 2.5x. At 20% it is 5x. So 4x is great for one business and a loss for another.
You open your ad dashboard and it says ROAS 4.1. Is that good? The dashboard will not tell you. It shows what the ads earned, never what you needed them to earn. Here is how to work that out in a minute.
Free tool
ROAS calculator (break-even and target). Enter your margin and get your break-even, a target with a safety margin, and the profit or loss per €100 of ad spend. It runs in your browser and nothing is sent anywhere.
The problem: dashboards show ROAS, not the ROAS you need
ROAS is revenue from ads divided by ad spend. Spend €100, earn €400, and your ROAS is 4x. It sounds like a win. But revenue is not profit. Part of every sale pays for the product or the service, and what is left has to pay for the ad. If the product eats most of the sale, 4x can still lose money.
How to calculate ROAS
ROAS = revenue from ads ÷ ad spend. If you spend €1,000 on ads and they bring €4,100 of sales, your ROAS is 4.1x. That is the number your ad platform shows. It says nothing about whether you made money, which is what break-even ROAS (sometimes written BE ROAS) answers.
The formula
Break-even ROAS = 1 ÷ gross margin.
Gross margin is the price minus the direct cost of what you sell, as a percentage of the price, before VAT. If you sell for €100 and the product costs you €60, your margin is 40%.
At a 40% margin, break-even is 1 ÷ 0.40 = 2.5x. Every €1 of ads must bring back €2.50 of sales just to cover the product and the ad. Here are two worked examples (example numbers, not a client):
| Example | Margin | Break-even ROAS | Actual ROAS | Per €100 of ads |
|---|---|---|---|---|
| Shop A | 40% | 2.5x | 3.0x | €20 profit |
| Shop B | 20% | 5.0x | 4.0x | €20 loss |
The sums behind it. Shop A: €100 of ads bring €300 of sales, 40% of that is €120 gross profit, and after the €100 of ads you keep €20. Shop B: €100 of ads bring €400 of sales, 20% of that is €80, and after the ads you are €20 down.
Shop B has the higher ROAS and the worse business. That is the whole point.
If you want a quick reference, here is break-even ROAS at common margins:
| Gross margin | Break-even ROAS |
|---|---|
| 20% | 5.0x |
| 25% | 4.0x |
| 30% | 3.3x |
| 40% | 2.5x |
| 50% | 2.0x |
| 60% | 1.7x |
| 80% | 1.25x |
As a sentence you can quote: at a 25% margin, break-even ROAS is 4x, because 1 ÷ 0.25 = 4. Notice how fast it moves. A business with an 80% margin, such as software or consulting, can run ads at a ROAS that would sink a shop. This is why you should not copy a competitor's “good ROAS” unless you know their margin too.
Why “aim for 4x” misleads
You will read advice like “a good ROAS is 4x”. It sounds clear, and it is wrong for any business whose margin is not 25%. At a 50% margin your break-even is 2x, so 4x is excellent. At 20%, break-even is 5x, so 4x loses money. One number cannot be right for both.
The numbers on my own work make the same point. On Uni Vivamus, an online education business, Meta return on ad spend went from 1.8x to 4.9x within 90 days. That 4.9x is a peak figure from one engagement, and how we measure says what it counts. Whether 1.8x had been losing money depended on the margin, and the ROAS alone does not tell you that. I only call a ROAS a win after comparing it with break-even.
What to do with your number
- Set a floor. Your break-even is the lowest ROAS you accept on a campaign once it has had time to learn.
- Set a target above it. Add a safety margin for returns, tracking gaps and slow weeks. With a 20% buffer, 2.5x becomes a 3x target.
- Work it out per product. A product with a 60% margin breaks even at 1.67x. One with a 25% margin needs 4x. If both run in one campaign, the blended ROAS hides which one is losing.
Where to find your margin
Take the selling price and subtract everything it costs you to deliver one sale. For a shop that is the product, the packaging and the postage you pay. For a service business it is the cost of the time and any tools used to deliver the work. Divide what is left by the price. If your ad platform reports revenue including VAT, take the VAT out first (divide by 1 plus your VAT rate), because the margin here is before VAT. If you sell something for €200 and delivering it costs €120, you keep €80, so the margin is 40%. If you are not sure, use a number a little lower than your guess. A margin that is too high gives you a break-even that is too low, and that is the dangerous mistake.
If you are below break-even
Do not switch everything off in a panic. Check three things in this order. First, is the tracking right? A broken tag can make a profitable campaign look like a loss, or the other way round. Second, which campaigns are below the line? One weak campaign often drags down a healthy account, and cutting that one is easy. Third, is the problem the ad or what happens after the click? A page that does not convert wastes good traffic. Fix what is broken before you change the budget, and give any change a few weeks of data before you judge it.
What this number ignores
Be careful with it. The calculation uses the gross margin on the first sale, and that leaves things out:
- Repeat customers. If people buy again, your true break-even is lower than the first-sale number.
- Overheads. Salaries, software and rent are not in gross margin. A ROAS at break-even covers the product and the ad, not the rest of the business.
- Attribution. Ad platforms and your own sales records often disagree about which sale an ad caused. Treat the result as a clear floor, not a promise.
If you want to check the other side of the problem, the Google Ads budget audit checklist shows where spend leaks, and the Meta Ads campaign structure tier list covers how to set up the account so the number is readable. And if your tagging is messy, the ROAS you read is not reliable either, so fix your UTM naming first. Both are part of the paid media work I do.
Questions
What is a good ROAS for e-commerce?
There is no universal figure. A good ROAS is comfortably above your break-even ROAS, which is 1 ÷ your gross margin. Work out yours first, then add a safety margin.
Is break-even ROAS the same as target ROAS?
No. Break-even is where you make no profit and no loss. Target ROAS is where you aim to be, and it should sit above break-even so the ads actually earn money.
Which costs go into the margin?
Include everything it costs to deliver the sale: the product or service cost, packaging and shipping you pay. Leave out VAT and fixed overheads. Returns are easier to cover through the safety margin.
Want us to look at your numbers?
If your ROAS is under break-even, that is the first thing I would look at in a free audit.
Book a free 30-minute call. I look at your numbers first, and within 48 hours you get a written audit, yours to keep. No card, no contract.
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