How to work out your break-even ROAS
Your break-even ROAS is 1 divided by your margin. With a 40% margin that is 2.5: every €1 of ads must bring in at least €2.50 before you make money. Here is how to work it out, with the costs you must not forget.
The AdSweet teamFor online shopsWhat ROAS is
ROAS stands for return on ad spend: the revenue from your ads divided by what they cost. If you spend €100 and sell €300 worth, your ROAS is 3. For every euro, three come back.
What break-even ROAS is
Your break-even ROAS is the ROAS at which you exactly break even on a sale. You work it out like this: 1 divided by your margin. With a 50% margin, your break-even ROAS is 2. Below that you lose money on the first sale, above it you make money.
Don’t forget these costs
- VAT: it isn’t yours, so calculate without VAT.
- Shipping and packaging, even if the customer doesn’t pay for them.
- Payment fees, such as those for Bancontact or a card.
- Returns: if 1 in 10 customers sends something back, factor that in.
And customers who come back?
If a customer often buys again, a first sale may sometimes sit below your break-even. You earn it back later. Do it deliberately, though, and check after a few months whether those customers really came back.
Frequently asked questions
Do I calculate with or without VAT?
Without VAT. You pass the VAT on to the state, so it doesn’t count as what you earn.
I sell services, not products. What then?
Then you work with what an enquiry may cost. Work out what a job brings you and how many enquiries become a job. If 1 in 4 enquiries becomes a customer and you earn €400 from a customer, an enquiry may cost at most €100 to break even.