Short answer: your minimum profitable ROAS, or break-even ROAS, is 1 divided by your gross margin expressed as a decimal. With a 40% gross margin, the break-even ROAS is 1 ÷ 0.40 = 2.5. Below 2.5 you lose money on every sale; exactly at 2.5 the campaign pays for itself and leaves nothing behind.
This is why asking "what is a good ROAS?" has no answer. A ROAS of 3 is excellent for a business with 70% margins and a drain for one with 25%.
The calculation, step by step
Step 1: calculate the real gross margin on your average order. Real means after everything that leaves before you touch advertising:
- Average selling price excluding tax: €80
- Cost of goods: −€38
- Shipping and packaging you absorb: −€6
- Payment gateway fee (1.4% + €0.25): −€1.37
- Average cost of returns spread per order: −€3
- Gross margin per order: €31.63 on €80 = 39.5%
Step 2: divide. Break-even ROAS = 1 ÷ 0.395 = 2.53.
Step 3: add the contribution the business needs. Break-even pays no overhead and leaves no profit. If you want advertising to contribute, say, half the margin to the business and keep the other half, your target ROAS is 1 ÷ (0.395 × 0.5) = 5.06.
That second number — not the first — is the one that goes into the platform's tROAS bid.
What changes when there is repeat purchase
If your customers come back, measuring the campaign against the first order condemns it unfairly. The calculation runs on customer value, not on the ticket:
- Average order €80, margin 39.5% → €31.63 margin per order.
- Average orders per customer over 12 months: 2.4.
- Margin per customer in the first year: 31.63 × 2.4 = €75.91.
If you accept spending up to 60% of that annual margin to acquire the customer, your maximum CAC is €45.55, which on a first order of €80 equals a first-purchase ROAS of 1.76. A number that looks like a disaster in the dashboard and is in reality a growth machine — as long as repeat purchase is real and measured.
The risk is obvious: if repeat purchase is an optimistic estimate, you have just given yourself permission to spend twice as much. Measure it on real cohorts from your back office, not on the historical average.
Four mistakes that make the number come out wrong
- Using the catalogue margin instead of the real margin on what actually sells. If advertising pushes the most discounted products, your effective margin is lower than the theoretical one. Calculate the margin weighted by units sold in the last quarter.
- Forgetting returns. In fashion they can be 20–30% of orders and wipe out the entire break-even. They must be inside the margin, not in a footnote.
- Confusing platform ROAS with real ROAS. Platform ROAS is attributed and tends to run above the aggregate business figure. If you set the objective with business data but measure it with platform data, you are comparing two different things. This is why it is worth keeping MER under control as well.
- Setting an impossible target in the bid. Putting a tROAS far above what the campaign achieves today does not make it more efficient: it cuts delivery. Tighten in steps of 10–15% every two weeks, not all at once.
The quick break-even table
Minimum ROAS to not lose money on the first purchase, by gross margin:
- Margin 20% → break-even ROAS 5.0
- Margin 30% → break-even ROAS 3.3
- Margin 40% → break-even ROAS 2.5
- Margin 50% → break-even ROAS 2.0
- Margin 60% → break-even ROAS 1.7
- Margin 70% → break-even ROAS 1.4
- Margin 80% → break-even ROAS 1.25
Use it as a reference, never as a target: the target always carries on top the contribution the business needs and, where there is repeat purchase, the adjustment for customer lifetime value.
Frequently asked questions
What is a good ROAS in ecommerce?
There is no universally good figure. The only valid reference point is your break-even ROAS, which is 1 divided by your gross margin: with a 40% margin it is 2.5, and with a 25% margin it is 4. Any figure cited as an industry standard ignores the variable that decides the answer.
How do you calculate the break-even ROAS?
Break-even ROAS = 1 ÷ gross margin as a decimal. The gross margin must be the real one: selling price excluding tax minus cost of goods, absorbed shipping, payment fees and average cost of returns.
Are the target ROAS and the break-even ROAS the same thing?
No. The break-even ROAS is where you neither make nor lose money on the sale. The target ROAS is higher and incorporates the share of margin the business needs to cover overhead and generate profit. Working with the break-even as your target guarantees that paid media contributes nothing to the P&L.
Can I put my target ROAS directly into the platform bid?
Only if the campaign is already achieving something close to it. A tROAS far above current performance throttles delivery and the campaign stops spending. The correct procedure is to start from the real ROAS the campaign achieves today and tighten it in steps of 10–15% every two weeks until you reach the target.
How does repeat purchase affect the minimum ROAS?
It lowers it, significantly. If a customer makes an average of 2.4 orders in a year, you can afford a first-purchase ROAS well below break-even because profitability arrives with the following orders. The condition is that repeat purchase is measured on real cohorts and not estimated optimistically.
Know your real break-even ROAS
At Nash Marketing Labs we have managed over €18M in media, driven €220M billed by our clients, and delivered more than €10 returned per euro invested across 10+ years in paid media. Request a free audit and we will show you your real target — not a market benchmark.