Is your store really making money on ads?
Enter your average order value and margin, and the calculator tells you what ROAS you need to avoid losing money and how much you can afford to pay for one purchase.
Why you need it
A 3x ROAS can be a loss.
ROAS tells you how much revenue every dollar spent on ads brought in. It doesn’t tell you whether you’re in the black, because it doesn’t know what the product, shipping and returns cost you. Google and Meta don’t have that number. Only you do.
Once you enter your margin, you get a threshold. Above it you make money, below it you lose on every order.
A cosmetics store had a 3x ROAS and was happy with it. Once they factored in product cost, returns and shipping, their threshold was 3.8x. For three months they kept raising the budget and losing money on every sale.
Calculate per product, or per group with a similar price and margin, not for your whole store. If you sell items for $10 and for $500, the average doesn’t match any real order. Start with your main product group, then repeat for the others.
Changing the currency only changes the label. It doesn’t convert numbers you’ve already entered.
Are you running ads right now?
Plan your budget before your first ad.
Not sure of your margin? Work it out here.Enter product cost, shipping, fees and returns and get your net margin.
First enter your average order value above, then we’ll work out your margin.
Simplified: it assumes you lose the order value on a return. It doesn’t include return shipping or restocking, so the number is a rough estimate.
Enter your average order value and margin.
AOV times margin.
CPA (Cost Per Acquisition) is the cost of one purchase. Above this number, you lose money on every order.
Breakeven CPA divided by 1.4, about 71% of the threshold. That’s what you leave yourself for profit.
ROAS (Return On Ad Spend) is revenue per dollar of ad spend. Below this number, you lose money.
Breakeven ROAS times 1.4. At this level, you’re making money.
Target CPA times 30. Ad platforms need about 30 purchases a month to learn who to show your ad to.
Don’t use this number for your budget until you see that customers really do come back.
Check whether you’re making or losing money.
Not sure of your margin? Work it out here.Enter product cost, shipping, fees and returns and get your net margin.
First enter your average order value above, then we’ll work out your margin.
Simplified: it assumes you lose the order value on a return. It doesn’t include return shipping or restocking, so the number is a rough estimate.
Enter your average order value, margin and monthly ad spend.
Revenue from ads divided by ad spend.
100 divided by your margin. Below this number, you lose money.
The math: spend times the difference between your current and breakeven ROAS, times your margin.
Your three numbers
AOV × margin ÷ 1.4
100 ÷ margin
Breakeven ROAS × 1.4
Use them to set goals in your campaigns and to check every report.
Until you have a history, only count the first purchase. After 3 to 6 months you’ll see whether customers come back. If they do, you can pay more for a new customer, because you’ll make up the difference through their next purchases. Then compare the cost of a new customer with their total value.
Before you look at your report
Three things ROAS doesn’t show
- 01
ROAS isn’t profit.
With a 30% margin, your threshold is 3.33x. If your ROAS is 3x, you lose money on every sale, even though the number looks good.
- 02
Overall ROAS hides bad campaigns.
A campaign on your brand name usually has a high ROAS and pulls the average up. Other campaigns can be losing money while the overall number still looks fine. Look at each campaign separately.
- 03
What matters is the gap from your threshold.
A high ROAS on its own doesn’t mean much. What matters is that you’re consistently above your breakeven ROAS and have room to add budget.
Next step
Below your threshold? Check your store item by item.
The Store Checkup goes through your website, checkout, tracking and ads. In an hour or two, you see what’s eating your margin and where to start.
Have a service business? Lead value calculator
Note: the calculator gives an estimate based on the numbers you entered. It isn’t financial advice and doesn’t guarantee results. You make your own decisions about budgets and prices. For an accurate picture of your business, ask your accountant.