The formula
Contribution margin = (price − variable costs per order) ÷ price
Variable costs = product + shipping + packaging + card fees + refunds
Here's why it works. An order breaks even when the ad spend it took equals what the order contributes after its other costs. ROAS is revenue ÷ ad spend, so at break-even, ROAS = price ÷ contribution per order, which is 1 ÷ contribution margin. At a 40% contribution margin, 1 ÷ 0.40 = 2.50x: every $1 of ads has to bring back $2.50 of revenue before the order stops losing money. Written as a percentage, the way Google Ads expresses Target ROAS1, that's 250%.
The same number gives you the most you can pay for an order: max ad cost per order = price × contribution margin. It's the contribution per order itself.
Which margin: contribution margin, not markup
This is where most break-even numbers go wrong. Take a $50 product that costs $20, ships for $7 with $2.00 of packaging, paid through Shopify Payments on the Basic plan at 2.9% + 30¢ for a standard US card2.
| Margin used | Calculation | Value | "Break-even ROAS" |
|---|---|---|---|
| Markup | (50 − 20) ÷ 20 | 150% | 0.67x |
| Gross margin | (50 − 20) ÷ 50 | 60% | 1.67x |
| Contribution margin | (50 − 20 − 7 − 2 − 1.75) ÷ 50 | 38.5% | 2.60x |
Markup is profit as a share of cost, so it's usually well over 100% and 1 ÷ markup comes out below 1x. A ROAS under 1x means spending more on ads than the sales bring in. No product breaks even there, so a sub-1x answer is a sign the wrong margin went in.
Gross margin is the subtler mistake. It ignores shipping, packaging and card fees, so it says this product breaks even at 1.67x. The real figure is 2.60x. Every campaign running between those two numbers looks profitable in the ad dashboard and loses money on each order. If your margin comes from a report, check what it subtracts before you divide 1 by it.
Refunds belong in the variable costs too. Shopify keeps the card fee when you refund an order4, so a refunded order still costs its fee, its outbound shipping and its packaging while the revenue goes back. Enter your refund rate and the calculator counts that. For the full per-order breakdown, including discounts and a third-party gateway, use the profit margin calculator; it reports break-even ROAS as well.
Break-even ROAS by contribution margin
Generated from the same formula the calculator uses. The last column is the ROAS needed to keep 10% of revenue as profit after ads: 1 ÷ (margin − 10%).
| Contribution margin | Break-even ROAS | As % | Max ad spend per $100 of revenue | ROAS for 10% profit |
|---|---|---|---|---|
| 10% | 10.00x | 1,000% | $10.00 | n/a |
| 15% | 6.67x | 667% | $15.00 | 20.00x |
| 20% | 5.00x | 500% | $20.00 | 10.00x |
| 25% | 4.00x | 400% | $25.00 | 6.67x |
| 30% | 3.33x | 333% | $30.00 | 5.00x |
| 35% | 2.86x | 286% | $35.00 | 4.00x |
| 40% | 2.50x | 250% | $40.00 | 3.33x |
| 45% | 2.22x | 222% | $45.00 | 2.86x |
| 50% | 2.00x | 200% | $50.00 | 2.50x |
| 55% | 1.82x | 182% | $55.00 | 2.22x |
| 60% | 1.67x | 167% | $60.00 | 2.00x |
| 65% | 1.54x | 154% | $65.00 | 1.82x |
| 70% | 1.43x | 143% | $70.00 | 1.67x |
| 75% | 1.33x | 133% | $75.00 | 1.54x |
| 80% | 1.25x | 125% | $80.00 | 1.43x |
The curve is steep at the low end. Going from a 20% to a 30% margin drops break-even ROAS from 5.00x to 3.33x; going from 60% to 70% only moves it from 1.67x to 1.43x. For a thin-margin product, a small price rise or a cheaper shipping rate lowers the bar for ads more than almost any campaign tweak.
Using the number
- As a floor for campaigns. Any campaign, ad set or product running below break-even ROAS is losing money on first orders. Check it against live numbers with the ROAS calculator.
- As the base for a target. A Target ROAS set at break-even buys sales at zero profit. Add the profit you want to keep: at a 40% margin, a 4x target keeps 15% of revenue.
- Per product, not per store. A store average hides the products that can't afford ads. Work out break-even for your top sellers separately and put budget behind the lowest ones.
- With repeat purchases in mind. If customers reliably come back, running first orders below break-even can be a deliberate choice. Just work out what that repeat revenue is worth before you do it.
Limits
- Fixed costs aren't in it. Break-even ROAS covers the costs that come with each order. Your Shopify subscription, apps and salaries have to come out of the profit above it. The fee calculator shows what the subscription adds per order.
- Card rates vary. The prefills are Shopify Payments' standard US rates. Business cards, domestic American Express and international cards cost more3, so your blended rate may be higher.
- Attribution. The ROAS you compare against comes from an ad platform's attribution, which can overcount. Break-even is only as good as the revenue figure it's checked against.
- Discounts. Use the price customers actually pay. A product on a permanent 15% offer has a lower contribution margin than its list price suggests.
FAQ
What is BEROAS?
Shorthand for break-even ROAS: the ROAS at which ad spend exactly equals the contribution the ad-driven orders make. Below it you lose money on each order, above it you make money.
How do I calculate break-even ROAS?
Work out contribution margin: price minus product, shipping, packaging, card fees and refunds, divided by price. Then take 1 ÷ that margin. A 25% contribution margin gives 1 ÷ 0.25 = 4x.
Is break-even ROAS the same as target ROAS?
No. Break-even is the floor where ads stop losing money. Target ROAS is what you ask the ad platform to aim for, and it should sit above break-even by the profit you want to keep.
What's a good break-even ROAS?
Lower is better, because it means ads have more room. Under 2x means a contribution margin above 50%, which gives a lot of room. Above 4x means a margin under 25%, and paid acquisition gets hard to make work.
Why is my break-even ROAS higher than other calculators say?
Most calculators use gross margin (price minus product cost) and leave out shipping, card fees and refunds, or ask you for "margin" without saying which one. This one only accepts contribution margin, or builds it from your costs.