What Does Break-Even ROAS Really Mean?
Return on ad spend (also known as ROAS) is one of the most important metrics for business owners especially when they do advertisements. Essentially, ROAS will determine if you will have a profit or how much profit you can get with the advertisement you’re investing.
For instance, if you profited a $100 from a $25 of ad spend, that would mean that your ROAS is 4X. (Also referred to as 400% by multiplying it by 100)
Break-Even ROAS, on the other hand, is another concept of determining the minimum Return on Ad Spend. This is where you will find if you’re about to lose money.
How To Calculate Your Break-Even ROAS
To calculate your break-even point, you will need a few things.
Let’s say that you sold something and you profited a $100 of revenue. The cost of the good is $20, and you also have other fees for $21, that would mean that you would have a final profit of $59.
What this means is that each time you sell this product, you will make $59.
Now, you can use this profit as your break-even ad spend.
Meaning if you spend $58, you’re going to have $1 profit and if you spend $60, you’re going to lose a dollar profit.
In conclusion, $59 is your break-even.
Finally, to get your Break-Even ROAS, divide your initial profit per product by your break-even.
BreakEvenROAS = 100 / 59 = 1.69
That would leave you a minimum ROAS of 1.69.
What is a Good Break-Even ROAS?
Of course, when you calculate your ROAS, the first thing that you would want to see is how much you would profit from your ad spend. If you’re profiting from your ad spend that means you’re good to go.
But when it comes to numbers, having a break-even ROAS greater than 2 is what you should be targeting. However, having between 1.2 to 1.9 ROAS can also be a good sign.
Overall, as long as you are profiting, you’re good.
Are you a Shopify dropshipping merchant? Look no more because we have created a Break-Even ROAS calculator to make it easier for you.