contribution margin = price - cost of goods - payment fees - other variable cost
break-even ROAS = price / contribution margin
max cost per order = contribution margin
max cost per install = contribution margin x install-to-paid rate (app mode)
ROAS for X% net = 1 / (margin% - X%)
ROAS is revenue divided by ad spend. Break-even ROAS is the point where the profit on the revenue the ads produced exactly equals what you paid for the ads. It depends only on your margin. A 40% contribution margin gives a 2.5x break-even, a 25% margin gives 4x, a 60% margin gives 1.67x.
A worked example
An $80 order with $30 cost of goods, 3% payment fees ($2.40) and no other variable cost:
- Contribution margin = 80 - 30 - 2.40 = $47.60, which is 59.5%
- Break-even ROAS = 80 / 47.60 = 1.68x
- Maximum cost per order = $47.60
- At a 2.5x ROAS on $10,000 a month: revenue $25,000, margin $14,875, profit $4,875
App mode: a paying user worth $80 with a 30% store fee and a 4% install-to-paid rate gives a $56 margin per payer and a maximum cost per install of $2.24. If your CPI is above that, the funnel loses money before anyone pays.
Meta and Google report ROAS because revenue is what their pixel can see. They cannot see your cost of goods. A 3x ROAS is a great campaign for a 60% margin product and a loss for a 25% margin product. The same number means opposite things.
Three habits fix this:
- Set the campaign target at break-even ROAS times 1.3, not at a round number someone picked.
- Watch marginal ROAS as you scale. The average stays fine long after the last $1,000 of spend has gone below break-even.
- Recalculate whenever price, shipping or fees change. Most teams set the target once and never touch it.
Break-even ROAS for apps is a CPI problem
For apps the chain is longer: install, activate, trial, pay. Ad platforms optimise to installs, so the number you actually control is cost per install. Work backwards: margin per paying user, times the install-to-paid rate, is the most you can pay per install. A subscription app with a $40 first-year value after store fees and a 3% install-to-paid rate can pay $1.20 per install and no more.
The subscription app LTV calculator takes churn into account and gives a lifetime figure rather than first payment.
Questions people ask
What is a good ROAS?
One above your break-even with room to spare. There is no universal number. A 4x ROAS is a loss at a 20% margin and a strong result at a 50% margin. Compute your break-even first, then aim for 1.3x to 2x that.
Should I include fixed costs in break-even ROAS?
No. Break-even ROAS is a per-order decision: does this order make money after the ad that produced it. Fixed costs (salaries, rent, software) are covered by the total margin across all orders, so they belong in a monthly P and L, not in the ROAS target.
Is break-even ROAS the same as 1 divided by margin?
Yes. Price divided by contribution margin is the same as 1 divided by margin percentage. A 40% margin gives 1 / 0.4 = 2.5x.
What about returning customers?
If a customer buys again without another ad, that revenue lowers your true break-even. Use lifetime margin instead of first-order margin in the price field if you have reliable repeat data. Be honest about it, because this is where most optimistic ROAS targets come from.
How do I use this for Google Ads target ROAS bidding?
Google expresses target ROAS as a percentage. A 2.5x break-even is 250%. Set the bid target at break-even times 1.3 or more, expressed as a percentage, and lower it only when the conversion value you send Google is already net of fees and returns.
Sources
Last reviewed 11 September 2026. Formulas and benchmarks are published on the page so you can check them. This tool gives estimates, not quotes.
