Ask most e-commerce founders what ROAS their campaigns need to hit, and you'll hear a round number. "We target a 3x." "Our goal is a 4x ROAS." Press them on where that number came from, and the answer is usually a guess, a benchmark from a blog post, or "it's what our agency recommended."
This is a problem. If your actual break-even ROAS is 1.8x and you're targeting 3x, you're leaving profitable volume on the table. If your break-even is 3.5x and you're targeting 3x, you're losing money on every ad-driven sale without realizing it. The only way to set a correct ROAS target is to calculate your break-even point from your actual unit economics.
This guide gives you the formula, walks you through a real-world example, highlights the mistakes brands make most often, and provides a quick reference table by product category. If you want to skip the math and just get your number, jump straight to our free break-even ROAS calculator.
The Break-Even ROAS Formula
Break-Even ROAS = 1 / Gross Margin %
Where Gross Margin % = (Revenue − Cost of Goods Sold) / Revenue
That's it. The formula is elegantly simple, but the concept is powerful. It tells you the minimum amount of revenue your ads must generate per dollar spent to cover the cost of the product and the cost of the ad. At break-even ROAS, you are not making a profit on the ad-driven sale, but you are not losing money either.
Any ROAS above your break-even number generates profit. Any ROAS below it means every sale from ads is costing you more than it earns. The further above break-even you are, the more profitable each ad dollar becomes.
Walk-Through Example: A D2C Skincare Brand
Let's make this concrete with a real-world scenario.
Product: Anti-aging serum
Selling price: $85.00
Cost of goods sold (COGS): $22.00 (product cost, packaging, shipping to customer)
Gross margin: $85.00 − $22.00 = $63.00
Gross margin %: $63.00 / $85.00 = 74.1%
Break-Even ROAS: 1 / 0.741 = 1.35x
This means the skincare brand only needs to generate $1.35 in revenue for every $1.00 spent on ads to cover both the product cost and the ad spend. That's a low bar, which is exactly why high-margin products like skincare can scale ads so aggressively. If this brand targets a 3x ROAS, every ad dollar generates $3.00 in revenue, of which $2.22 is gross profit and $1.00 goes to ad costs, leaving $1.22 in profit per ad dollar.
Now contrast this with a consumer electronics brand selling a $200 gadget with $140 in COGS. Gross margin is 30 percent, and break-even ROAS is 1 / 0.30 = 3.33x. That brand needs a 3.33x ROAS just to not lose money. If they target the same 3x as the skincare brand, they are losing $0.33 on every ad dollar spent.
Calculate Your Break-Even ROAS in 60 Seconds
Enter your average order value and cost of goods sold to get your exact break-even ROAS, target ROAS, and profit-per-sale at different ROAS levels.
Open the Free CalculatorBreak-Even ROAS Quick Reference by Category
Use this table as a rough benchmark for your product category. Your actual numbers will vary based on your specific COGS, shipping costs, and return rates, so always calculate your own break-even using the formula above.
| Product Category | Typical Gross Margin | Break-Even ROAS | Suggested Target ROAS |
|---|---|---|---|
| Skincare & Beauty | 65% – 80% | 1.25x – 1.54x | 1.8x – 2.5x |
| Supplements & Wellness | 60% – 75% | 1.33x – 1.67x | 2.0x – 2.5x |
| Apparel & Fashion | 45% – 65% | 1.54x – 2.22x | 2.5x – 3.5x |
| Home & Kitchen | 40% – 55% | 1.82x – 2.50x | 2.8x – 4.0x |
| Food & Beverage | 35% – 55% | 1.82x – 2.86x | 3.0x – 4.5x |
| Consumer Electronics | 20% – 35% | 2.86x – 5.00x | 4.0x – 7.0x |
Suggested target ROAS includes a 20 to 30 percent margin buffer above break-even to account for returns, overhead, and profit margin.
Common Break-Even ROAS Mistakes
1. Forgetting to Include Shipping in COGS
If you offer free shipping, the shipping cost to the customer is part of your COGS, not a separate line item. A product with $20 COGS and $8 in shipping costs has an effective COGS of $28. Using $20 in your calculation will make your break-even ROAS look lower than it actually is, leading you to think campaigns are profitable when they are not.
2. Ignoring Return Rates
If 15 percent of your orders are returned, your effective revenue per order is 15 percent lower than your selling price. For a $100 product with a 15 percent return rate, your effective revenue is $85. Use the adjusted revenue in your gross margin calculation. This is especially important for apparel brands where return rates can exceed 25 percent.
3. Using a Blended ROAS Target Across All Campaigns
Different campaigns serve different purposes. Your brand search campaign might deliver 10x ROAS because it captures existing demand. Your cold prospecting campaign might deliver 2x ROAS because it creates new demand. Both are valuable, but applying a blended 4x target to both would cause you to over-invest in brand (diminishing returns) and under-invest in prospecting (starving your funnel). Set targets by campaign type and funnel position.
4. Not Accounting for Customer Lifetime Value
Break-even ROAS only measures the profitability of the first purchase. If your product has strong repeat purchase behavior (like supplements, skincare, or consumables), you can afford to acquire customers at or even slightly below break-even ROAS because the lifetime value will make the acquisition profitable over time. This is an advanced strategy that requires accurate LTV data, but it can unlock significant scale.
If your ROAS is already below break-even and declining, read our guide on why your ROAS is dropping and what to do about it for a full diagnostic framework. And if you're trying to figure out the right budget allocation across channels, our e-commerce ad budget guide covers benchmarks and frameworks by revenue stage.
Frequently Asked Questions
What is break-even ROAS?
Break-even ROAS is the minimum return on ad spend your campaigns must achieve for each sale to cover its own costs. At break-even ROAS, your ad-driven revenue exactly covers the cost of goods sold plus the ad spend that generated the sale. You are not making a profit and you are not losing money. Any ROAS above break-even generates profit; any ROAS below it means you are paying more to acquire a sale than you earn from it.
How do I calculate break-even ROAS?
The formula is simple: Break-Even ROAS = 1 / Gross Margin Percentage. Gross margin percentage is calculated as (Revenue - Cost of Goods Sold) / Revenue. For example, if your product sells for $100 and your cost of goods sold is $40, your gross margin is 60 percent (0.60), and your break-even ROAS is 1 / 0.60 = 1.67x. This means your campaigns must generate at least $1.67 in revenue for every $1.00 spent on ads to break even.
What is a good target ROAS for e-commerce?
A good target ROAS depends entirely on your gross margins. High-margin brands like skincare or supplements (65 to 80 percent margins) can be profitable at 1.5 to 2x ROAS. Mid-margin brands like apparel or home goods (45 to 60 percent margins) typically need 2x to 3x. Low-margin brands like electronics or commodity goods (20 to 35 percent margins) often need 3x to 5x or higher. Calculate your specific break-even number first, then add a margin buffer of 20 to 30 percent for your target.
Should I use the same target ROAS for all campaigns?
No. Different campaigns serve different objectives and should have different ROAS targets. Retargeting campaigns typically deliver higher ROAS because they target warm audiences, so a higher target is appropriate. Prospecting campaigns target cold audiences and naturally have a lower ROAS, but they drive the top-of-funnel growth that feeds your retargeting pool. Brand campaigns often show very high ROAS but are not driving incremental revenue. Set targets by campaign type based on the role each plays in your funnel.
Know Your Numbers. Scale With Confidence.
BTB Media helps e-commerce brands set ROAS targets grounded in real unit economics — not generic benchmarks. We'll audit your ad accounts, verify your tracking, and build a performance framework that ties every ad dollar to actual profit.
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