What ROAS measures, and what it doesn’t
Return on ad spend is revenue divided by what the ads cost: $4,000 of sales from $1,000 of spend is a ROAS of 4.0, often written 4x or 400%. It is a revenue ratio, not a profit one. A 4x ROAS on a product with a 20% margin loses money; the same 4x on a 60% margin is very profitable. That is why the number to set a campaign against is your break-even ROAS.
Break-even ROAS
Ads pay for themselves when the gross profit on the sales they bring in covers their cost: revenue × margin = ad spend. Rearranged, the ROAS you need is 1 ÷ gross margin. At a 40% margin that is 2.5x; at 25% it is 4x; at 70% it is about 1.43x. Below that line every sale the ads produce loses money before you pay for anything else; above it, the surplus is what contributes to overhead and profit.
Use a real gross margin: price minus the cost of the product, shipping, payment fees and returns, divided by price. Markup is a different number — a 100% markup is a 50% margin. The markup calculator converts between the two.
CPA and the most you can pay for a customer
Add the number of orders and the calculator also gives cost per acquisition (spend ÷ orders) and the break-even CPA: your average order value times your gross margin. With an $80 average order at 40%, you can pay up to $32 to win an order before the first purchase loses money. If customers come back to buy again, you can justify paying more up front — the LTV and CAC calculator works that out.
Read it with care
Ad platforms attribute sales with their own windows and models, and they tend to claim credit generously. Compare ROAS across campaigns measured the same way, and check the total against your actual sales before you scale a campaign on the platform’s number.