Your ROAS looks good. But are you actually profitable?

Return on ad spend measures attributed revenue divided by advertising spend. It tells you how much revenue an ad dollar brings in, but it does not tell you how much of that revenue you keep.

Start with contribution margin

Subtract the variable costs of an order from net revenue: product cost, fulfillment, packaging, shipping, payment fees and expected unrecovered return costs. What remains is the amount available for advertising, fixed overhead and profit.

The break-even ROAS formula

Break-even ROAS = revenue ÷ contribution margin. On a $100 order with $60 in non-ad variable costs, your margin is $40. Your break-even ROAS is 2.5×. At 2×, you spend $50 on advertising and lose $10 per order before fixed overhead. At 4×, you spend $25 and retain $15.

Break-even is a floor, not a target

If your target profit is $10 per order in the example above, only $30 remains available for ads. Your target ROAS becomes $100 ÷ $30 = 3.33×. Fixed overhead requires a further buffer. A product with no positive pre-ad margin cannot be fixed by a higher advertising return alone.

Keep measurement consistent

A platform may report revenue including sales tax, shipping or orders later refunded. Compare an equivalent net-revenue measure, use a consistent attribution window and check actual order profitability. ROAS and marketing efficiency ratio differ because the latter uses total business revenue rather than channel-attributed revenue.