How to Calculate Break-Even ROAS for Your Shopify Store

"Is a 2.5 ROAS good?" is the question I get most from Shopify store owners. The honest answer is: it depends entirely on your margins. A 2.5 ROAS can be very profitable for one store and lose money on every order for another.

That's why the first number I calculate for any e-commerce account is break-even ROAS: the return on ad spend at which an order covers its costs and the ad, with nothing left over. Anything above it is profit. Anything below it is a loss you are paying to acquire.

What break-even ROAS means

ROAS (return on ad spend) is revenue divided by ad spend. If you spend $1,000 and the ads drive $3,000 in sales, your ROAS is 3.0.

Break-even ROAS is the ROAS where profit from those sales exactly equals what you spent on ads. Below it, every sale from ads costs you money. Above it, the business makes money on the first order.

Step 1: Work out your real cost per order

Most store owners only subtract product cost. That makes break-even ROAS look lower than it really is, which leads to scaling campaigns that quietly lose money. Include every cost that grows with each order:

• Cost of goods (COGS): product cost plus inbound freight and duties
• Fulfilment and shipping: pick, pack, packaging and postage (including the shipping you pay on "free shipping" orders)
• Payment processing: Shopify Payments, PayPal or other gateway fees
• Returns and refunds: an average allowance, based on your return rate
• Per-order app or platform fees: for example apps that charge per order, or marketplace commissions
• Discounts: if you usually run a code, calculate on the discounted price

Fixed costs like your Shopify plan, salaries and rent don't belong here. They're covered by the profit you make above break-even.

Step 2: Calculate contribution margin

Contribution margin is what's left from an average order after those variable costs, shown as a percentage of the order value.

Contribution margin % = (AOV − variable costs per order) ÷ AOV

Here's a worked example for a store with a $60 average order value:

Step 3: Calculate break-even ROAS

Break-even ROAS = 1 ÷ contribution margin

In the example: 1 ÷ 0.519 = 1.93. That store needs at least $1.93 in revenue for every $1 of ad spend just to break even. Check the maths: at a 1.93 ROAS, a $60 order costs about $31 in ads, which is the full $31.16 contribution.

A quick reference for different margins:

This is why low-margin stores struggle with paid social: at a 20% margin you need a 5x ROAS just to stand still.

Step 4: Set a target ROAS for profit

Break-even is the floor, not the goal. Decide what share of revenue you want to keep as profit after ads, then:

Target ROAS = 1 ÷ (contribution margin − target profit margin)

If the example store wants to keep 15% of revenue: 1 ÷ (0.519 − 0.15) = 2.71. That's the number to set as a ROAS goal or to judge campaigns against.

Break-even ROAS vs. break-even CAC

If customers buy again, judging ads only on the first order can be too strict. Brands with strong repeat purchase (supplements, coffee, skincare) often accept a first-order ROAS near or even slightly below break-even, because the second and third orders bring the profit.

In that case, also calculate your break-even CAC: the most you can pay to acquire a customer, based on their expected contribution over a realistic period such as 6 or 12 months. Only do this with real repeat-purchase data from your store, not hopeful estimates.

How to use break-even ROAS in your ad accounts

• Judge campaigns against it: prospecting campaigns consistently below break-even need fixing or cutting; campaigns well above it are candidates to scale.
• Use it for bid strategies: on Meta, a minimum ROAS goal, and on Google Ads, target ROAS, should sit at or above your break-even (Google expects target ROAS as a percentage, so 1.93 becomes 193%).
• Watch blended MER: MER (marketing efficiency ratio) is total Shopify revenue ÷ total ad spend. Platform ROAS can over- or under-report because of attribution, so compare it with MER every week.
• Recalculate when costs change: new suppliers, shipping rates or a permanent discount all move your break-even.

Prospecting campaigns usually show a lower ROAS than retargeting. Judge the account as a whole as well as each campaign: retargeting can only harvest the demand prospecting creates. If your ROAS has slipped below break-even recently, start with my guide on why Meta ads ROAS drops and how to fix it.

Common mistakes

• Using product cost only and ignoring shipping, fees and returns
• Calculating on full price when most orders use a discount code
• Comparing Meta-reported ROAS with a break-even figure without checking it against Shopify sales
• Setting one ROAS target for every product, when margins differ a lot by product

Frequently asked questions

What is a good ROAS for a Shopify store?

A good ROAS is one that is comfortably above your break-even ROAS. Calculate break-even as 1 divided by your contribution margin. A store with a 50% margin breaks even at 2.0, so a 2.8 ROAS is healthy; a store with a 25% margin needs 4.0 just to break even.

How do I calculate break-even ROAS?

Subtract all variable costs per order (product cost, shipping, payment fees, returns, per-order fees) from your average order value, divide by the average order value to get contribution margin, then divide 1 by that margin. For example, a 40% margin gives a break-even ROAS of 2.5.

Should I include fixed costs in break-even ROAS?

No. Break-even ROAS uses variable, per-order costs. Fixed costs such as software, staff and rent are paid from the profit you make above break-even, so plan your target ROAS high enough to cover them.