Break-Even ROAS for Ecommerce: How to Set Profitable Ad Budgets Using Your Product Margins and Conversion Rates

Knowing your break-even ROAS is the fastest way to turn guesswork into a clear ad budget you can trust. Instead of chasing platform-reported ROAS that may be incomplete, you can anchor spend decisions to your own margins, conversion rate, and average order value. This guide walks you through the simple math, a concrete example, and a fast way to model it with the free tool at FullyCounted.

ROAS vs break-even ROAS, in plain English

Return on ad spend is revenue divided by ad spend. As explained in Google Ads’ Target ROAS help, advertisers often optimize toward a target ROAS that reflects how much revenue they want for each dollar spent. Break-even ROAS is the minimum ROAS you need so that your profit after variable costs and ad spend equals zero. Anything higher is profitable.

The key to computing break-even ROAS is your contribution margin ratio, which is how much of each revenue dollar is left after variable costs. The Corporate Finance Institute’s definition of contribution margin ratio describes it as revenue minus variable costs, divided by revenue. Once you have that ratio, the formula is simple:

Break-even ROAS = 1 divided by contribution margin ratio

Step 1: Get your real contribution margin

List variable costs that scale with orders: product cost, payment processing, shipping, packaging, fulfillment or pick and pack, and discounts. For card fees, Shopify’s guidance on credit card processing fees highlights that online rates commonly start around 2.9 percent plus 30 cents in the US, which is useful for planning.

Compute the contribution margin ratio as:

• Contribution margin dollars = price minus total variable costs per order
• Contribution margin ratio = contribution margin dollars divided by price

If your contribution margin ratio is 40 percent, your break-even ROAS is 1 divided by 0.40, which equals 2.5. That means you must generate 2.50 dollars of revenue for every 1 dollar of ad spend to not lose money on variable costs.

For a quick way to capture these inputs, use the free Break-Even and Profit Analysis calculator at FullyCounted. You can enter product-level costs, see instant updates, and export a report for your deck. If you are unsure whether a cost is fixed or variable, the primer on ecommerce fixed vs variable costs with 2025 benchmarks can help you classify expenses accurately.

Step 2: Translate ROAS into CPA and CPC using conversion rate and AOV

Break-even ROAS shows viability at the revenue to ad spend level, but most buying on ad platforms happens at the CPA or CPC level. You can connect the dots with two simple relationships:

• Break-even CPA = AOV multiplied by contribution margin ratio
• Break-even CPC = Break-even CPA multiplied by conversion rate

Average order value is straightforward, and Shopify’s AOV guide gives a clear definition and formula if you need a refresher. As for conversion rate, recent Shopify benchmarks on ecommerce conversion rate in 2025 indicate that 3.2 percent places you in the top 20 percent of Shopify stores and 4.7 percent in the top 10 percent, with many stores operating closer to the 1 to 3 percent range. Use your actual analytics when possible; otherwise, plan conservatively.

These conversions let you sanity check campaign targets. If your break-even CPC pencils out to 0.45 dollars and your current search CPCs are 1.10 dollars, you either need a higher conversion rate, a higher AOV, a stronger margin, or a different channel.

Step 3: Turn the math into a monthly ad budget

After you establish what you can afford to pay per order and per click, set a monthly budget that accounts for fixed costs and profit goals. A simple structure looks like this:

• Expected revenue = traffic multiplied by conversion rate multiplied by AOV
• Variable profit = expected revenue multiplied by contribution margin ratio
• Allowed ad spend = variable profit minus fixed costs minus desired profit

You can model this in seconds with FullyCounted’s free calculator, which accepts monthly fixed expenses like rent and utilities, software and tools, and other overhead, then computes break-even and profit projections in real time. If your store has subscription products, the companion guide on subscription vs one time LTV, payback, and cash flow shows how lifetime value and payback windows can expand your allowable CPA beyond first order margin.

A concrete example you can copy

Assume you sell a 50 dollar product.

• COGS: 20 dollars
• Shipping: 5 dollars
• Pick and pack: 2 dollars
• Payment processing: 2.9 percent plus 0.30 dollars, which equals 1.75 dollars on a 50 dollar order

Total variable costs: 28.75 dollars. Contribution margin dollars: 21.25 dollars. Contribution margin ratio: 21.25 divided by 50 equals 42.5 percent. Break-even ROAS: 1 divided by 0.425 equals 2.35. Break-even CPA: 50 multiplied by 0.425 equals 21.25 dollars.

Now add site performance. If your conversion rate is 2 percent, break-even CPC equals 21.25 multiplied by 0.02 equals 0.425 dollars. If your observed CPCs are 0.38 dollars on a social placement and 0.90 dollars on a search keyword, the social placement is viable on first order economics, while the search keyword likely requires a higher AOV through bundling or email upsells, or it needs to be paused.

For a monthly view, suppose you plan for 10,000 sessions at 2 percent conversion, which is 200 orders. Revenue at 50 dollars AOV equals 10,000 dollars. Variable profit equals 200 multiplied by 21.25 equals 4,250 dollars. If fixed costs are 1,500 dollars and your target profit is 1,000 dollars, your allowed ad spend is 4,250 minus 1,500 minus 1,000 equals 1,750 dollars. That yields a target blended ROAS near 10,000 divided by 1,750 equals 5.71, which comfortably clears your 2.35 break-even ROAS threshold.

Practical guardrails that keep you profitable

Start with conservative assumptions. Using the lower bound of your last 90 days conversion rate and AOV protects you from seasonal dips and landing page changes. Validate performance with multiple measurements. Because attribution is noisier on some platforms after privacy changes, Meta’s Aggregated Event Measurement documentation explains why reported conversions can be limited at the user level. This is a good reason to monitor blended metrics like MER, where revenue divided by total ad spend should stay above your break-even ROAS.

Improve the three levers you control. Margin expands with cost reductions and price tests. Conversion improves with faster pages and clearer offers. AOV grows through bundles, cross-sells, and post-purchase upsells. Small wins on each lever meaningfully raise your break-even CPC and CPA, which unlocks more scale at stable profitability.

Move from math to action with tooling. The on-page experience at FullyCounted is designed for speed, so you can enter assumptions, watch results update in real time, and export a plan to share. If you are ready to validate your economics with real traffic, you can spin up a storefront quickly with Shopify and connect your analytics stack from day one.