Break-even ROAS calculator

A break-even ROAS calculator settles the question to answer before any campaign goes live: how much can you spend to win one order before it stops paying for itself? The answer comes as a cost per order, a ROAS and an ACoS.

What break-even ROAS tells you

Break-even ROAS is the return on ad spend at which advertising takes everything an order leaves you, so the order makes neither profit nor loss. Above it, each ad-won order adds profit. Below it, each one costs you money, however healthy the sales figure looks.

ROAS, return on ad spend, is the sales an ad platform credits to your ads divided by what you spent on them. On its own it says nothing about profit, because it counts revenue before the cost of the goods, the fees and the returns.

That is why one target ROAS for every product rarely works. A thin margin needs a high ROAS to break even, while a wide one can run lower and still pay, so the calculator finds the line one product at a time.

How the calculator works it out

The calculator follows one order from the price the buyer pays to what is left for advertising, in four steps:

1. Take out the GST. The price net of GST is the price divided by one plus the GST rate: at 18%, the price divided by 1.18. The GST is collected for the government, so it is not yours to spend.
2. Take off the fees. Marketplace commission or payment gateway fees, as a share of the price the buyer pays, plus any fixed fee per order.
3. Take off cost and shipping. Subtract the landed cost of the product and what you pay for shipping and packing. What remains is what a delivered order leaves you.
4. Allow for returns. The orders that come back earn nothing and cost the return itself; the rest earn what a delivered order leaves.

The last step gives the contribution per order placed, before advertising: the share of orders kept, times what a delivered order leaves, less the share returned, times the cost of each return.

That contribution is also the break-even CPA, or cost per acquisition: the most you can spend on advertising to win one order.

Three ratios follow from it. Break-even ROAS on order value is the price, GST included, divided by the contribution, and break-even ACoS, advertising cost of sales, is that ratio turned upside down, shown as a percentage.

Break-even ROAS on net kept revenue divides the price net of GST, counted only on the orders kept, by the same contribution. Which of the two ROAS figures to use depends on your report, as the section below explains.

One order, worked through

Illustration: a kurta sells for ₹ 1,050, including 5% GST. It costs ₹ 300 landed; fees are 20% of the price plus ₹ 40 an order; shipping and packing cost ₹ 50; and one order in five comes back, at ₹ 100 a return.

In the illustration, a campaign on this kurta that reports a ROAS above 3.5 is adding profit, and one below it is buying sales at a loss. A report that counts revenue net of GST and returns would put the same line at 2.67.

Order value or net revenue: which ROAS?

Use the break-even figure that matches the report you are reading. The two describe the same line measured against different revenue, so a campaign judged against the wrong one looks better or worse than it is.

Ad platforms and marketplace consoles count an order when it is placed, before cancellations, returns and RTO. Marketplace consoles usually report the price the buyer paid, GST included; Google Ads and Meta record the value your tracking sends.

So judge a platform’s ROAS against break-even on order value, and check first what value your tracking sends, since a storefront can send the price with or without GST and shipping.

Our client reports count revenue net of GST, cancellations, returns and RTO, return to origin: parcels that come back undelivered. ROAS on that basis breaks even lower, because the revenue counted is smaller; the guide to ROAS vs ACoS covers how each measure is built.

Whichever basis you use, keep to it. A platform’s ROAS set against a break-even line worked out on net revenue makes every campaign look healthier than it is.

What the calculator assumes

The calculator works on one order of one product, so a few things are for you to settle before you enter the figures:

• One product per order. For baskets of several products, enter an average order: its average price, cost and fees.
• Landed cost without reclaimable GST. The cost of the product delivered to you, leaving out any GST you claim back as input tax credit.
• Fees as a share of the price paid. If your marketplace or gateway charges on another base, convert the fee first. GST charged on the fees is usually claimed back, so leave it out.
• One return rate and one return cost. The rate covers customer returns and RTO together; the cost covers shipping both ways, repacking and an allowance for damage.
• No overheads. Salaries, rent and software are not in the order, so break-even here means the order covers itself, not the business.

TCS, tax collected at source, which marketplaces deduct from your payouts under GST, is not a cost either: it is credited against the GST you owe, so leave it out of the fees.

What to do with the result

Treat break-even as a floor, not a target. A target ROAS sits above break-even by the profit you want each ad-won order to keep, and it is set per channel, because search, social and marketplace ads win different orders at different costs.

Run the calculator for each product you advertise, or each price band. A product that needs a ROAS no campaign reaches is better repriced, or sold without paid ads, than pushed harder.

If the calculator shows a loss before advertising, no bid or budget can fix it. Look at the price, the landed cost, the fees and the return rate first; marketplace account management works on most of those levers week by week.

Returns can move the line a long way. The RTO cost calculator gives a sounder cost for each return when cash-on-delivery refusals make up much of yours, and the volumetric weight calculator checks the shipping figure.

We set targets this way in performance marketing work: from your margin, per channel, with written rules for when spend is cut back.

Paid search and social campaigns are then judged against those lines every week, with tracking that sends order values on a basis you can trust. We run brands of our own as well, on the same arithmetic.