Return on Ad Spend (ROAS) is one of the most commonly used metrics in e-commerce advertising. But if you’re still using ROAS alone to gauge success, you’re leaving profit on the table — or worse, losing money on “successful” campaigns.

In this blog, we’ll show you exactly how to calculate break-even ROAS and start using profit-based bidding instead. No fluff. Just formulas and frameworks that actually help operators.

1. Why Break-Even ROAS Matters More Than a Target ROAS

ROAS is easy to track. But it’s based on gross revenue, not profit. That’s why a 5x ROAS can be a win for one brand and a disaster for another.

What really matters is your true break-even ROAS — the point at which your ad spend covers your product cost, fulfillment, and fees.

  • Anything above that is profit.

  • Anything below is a loss.

2. The Break-Even ROAS Formula

Here’s how to calculate your break-even ROAS:

Break-even ROAS = 1 / (Profit Margin)

Where:

  • Profit Margin = (Revenue – COGS – Fulfillment – Fees) / Revenue

📌 Example:

  • Revenue per order: $100

  • Product cost (COGS): $40

  • Fulfillment & fees: $20

  • Profit margin = ($100 – $40 – $20) / $100 = 40%

  • Break-even ROAS = 1 / 0.4 = 2.5x

👉 That means if your ROAS is under 2.5x, you’re losing money. Period.

3. How to Use Profit-Based Bidding on Ad Platforms

Platforms like Google and Meta now allow for more advanced bidding strategies based on margin or conversion value. Here’s how to implement profit-based bidding:

On Google Ads

  • Set up offline conversion tracking

  • Import profit values via enhanced conversions or API

On Facebook/Meta Ads

  • Use value optimization for high-margin products

  • Create campaigns segmented by margin tier

On Amazon Ads

  • Use SKU-level targeting with contribution margin data

  • Set TACoS goals based on actual profit, not revenue

📊 Data That Backs This Up

A growing number of DTC brands have reported stronger net profit performance after shifting to profit-first optimization.

See what Klaviyo says about profitability-focused strategies → Klaviyo Blog

🧠 Pro Insight: Don’t Use Blended ROAS Alone

Blended ROAS (total sales ÷ total ad spend) can be misleading. It hides:

  • Whether paid ads are driving profitable first orders

  • The drag of loss-leader SKUs

  • How much repeat purchases are inflating your numbers

Modonix Tip: Use cohort analysis to separate new vs. repeat ROAS. Track net revenue per SKU to know where your margin is actually coming from.

📚 Further Reading

Final Thoughts

Revenue is not profit. And ROAS alone is not a business strategy.

Know your break-even ROAS. Optimize for margin. Bid based on what puts money in the bank — not what flatters your ad dashboard.

📌 Need help calculating break-even ROAS for your store? Book a Free Audit →