Enter order value, margin and variable costs to find the ROAS and CPA you must beat before a campaign makes money.
Most accounts run a target ROAS that somebody picked because it sounded ambitious. Once you know break-even, the target stops being arbitrary: set it above break-even by the net margin you want and the bidding algorithm receives a meaningful instruction.
It also tells you when to stop. If break-even is 3× and the campaign has run at 2.4× for a quarter, the answer is not more optimisation − the unit economics do not support the channel at current prices.
Using gross margin instead of contribution margin. This sets the bar too low and quietly loses money on every sale. On a $120 order with 40 percent gross margin and $8 of variable cost, true contribution is 33 percent, and break-even is 3.0× rather than 2.5×.
If you have repeat purchase data, break-even on first order is the wrong bar.
If you have repeat purchase data, break-even on first order is the wrong bar. A business where 35 percent of customers buy again within a year can afford to acquire at a loss on the first sale and profit over the relationship.
Work out contribution margin across the expected customer lifetime, then set break-even against that. Be conservative with the repeat rate, it is the assumption most likely to be wrong, and the one that decides how much you are willing to lose up front.
Break-even ROAS is the floor where advertising stops losing money. A target ROAS adds the net margin you want to keep on top. The gap between them is larger than most people expect, especially at low margins.
| Contribution margin | Break-even ROAS | Target ROAS to keep 10% |
|---|---|---|
| 20% | 5.00x | 10.00x |
| 33.3% | 3.00x | 4.29x |
| 50% | 2.00x | 2.50x |
| 70% | 1.43x | 1.67x |
At 20 percent contribution, keeping a 10 percent net margin requires double the break-even return. At 70 percent it requires only a little more. This is why low-margin businesses find paid acquisition so unforgiving: the target they need is not a small step above break-even, it is a different league.
The first trap is setting a bidding target equal to break-even. Automated bidding treats the target as an average to hit, so roughly half the spend lands below it. An account told to achieve exactly break-even will lose money on a large share of its budget and report success.
The second is setting the target against reported ROAS. Platform-reported revenue usually includes sales that would have happened anyway. If the platform reports 3.0x and a third of that revenue was going to arrive regardless, the real return is 2.0x, below break-even in the default example. The reported figure has to clear break-even by a margin wide enough to absorb that overstatement. The MER calculator shows how large the gap is in your own numbers.
The third is using gross margin instead of contribution margin, which the page above covers. It is common enough to repeat: shipping, payment fees and returns come out of every order, and leaving them out sets the break-even line too low.
No. Automated bidding treats the target as an average, so a large share of spend lands below it. Set the target high enough above break-even to cover the net margin you want and the extent to which the platform overstates its own revenue.
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