The Complete Guide to Break-Even ROAS for DTC and Shopify Plus Brands
How to Calculate Your Break-Even ROAS (and Why It Matters More Than You Think)
A complete guide for Shopify and DTC brands to understand true profitability, scale intelligently, and turn paid media into sustainable growth.
1. The Fundamentals: What ROAS Actually Means
ROAS (Return on Ad Spend) measures how much revenue your ads generate for every dollar spent. If you spend $1,000 and make $3,000 in sales, your ROAS is 3.0.
It’s simple, but dangerously incomplete. ROAS tells you top-line efficiency, not bottom-line profitability. You can have a high ROAS and still lose money once you factor in product costs, shipping, and overhead.
Why Knowing Your Break-Even ROAS Matters
- It defines the exact point where ads stop losing money and start generating profit.
- It tells you how much you can afford to spend to acquire a customer.
- It gives you confidence to scale — knowing when a “low ROAS” is still profitable.
- It aligns your marketing and finance teams on real performance, not vanity metrics.
Once you know your Break-Even ROAS (BEROAS), you can make decisions grounded in economics — not emotion.
2. Step-by-Step: How to Calculate Break-Even ROAS
Step 1: Gather Your Inputs
For one period (month or quarter), collect:
- Revenue (R) — total sales from ads
- Ad Spend (A) — total paid media cost
- COGS % — product cost as % of revenue
- Variable Fees % — payment fees, fulfillment, shipping, returns, discounts
- Fixed Costs (F) — salaries, rent, software, operations
Step 2: Calculate Your Margins
Start with gross margin, then subtract variable fees:
Gross Margin % (GM%) = 1 − COGS% Contribution Margin 1 (CM1%) = GM% − Variable Fees%
CM1% represents what’s left from each dollar of revenue before ad spend and fixed costs.
Step 3: Find Your Break-Even ROAS
Now apply this formula:
Break-Even ROAS = 1 / CM1%
Example: If your gross margin is 60% and variable fees total 12%, then CM1% = 48%. BEROAS = 1 / 0.48 = 2.08. That means a ROAS below ~2.1 loses money before overhead; above it, you start generating contribution profit.
Step 4: Include Fixed Costs for Full Break-Even
To account for fixed costs, use:
ROAS (company breakeven) = (1 + F / A) / CM1%
Where F = fixed costs and A = ad spend for the period. This shows the ROAS needed to cover both ads and overhead.
3. Real Example: ROAS vs. Revenue Volume
Let’s see why a “perfect” ROAS can be misleading.
| Scenario | ROAS | Revenue | Ad Spend | Profit (after $20k fixed) |
|---|---|---|---|---|
| A — High ROAS, low volume | 3.0 | $100,000 | $33,333 | −$5,333 |
| B — Lower ROAS, higher volume | 2.5 | $300,000 | $120,000 | +$4,000 |
Same margins, different outcomes. At 3.0 ROAS and $100k revenue, the brand loses money after overhead. At 2.5 ROAS and $300k revenue, it earns more total profit despite “worse” efficiency.
Because profit = (CM1% × ROAS − 1) × Ad Spend − Fixed Costs.
As long as CM1% × ROAS > 1, increasing ad spend (scale) increases total profit.
4. Spreadsheet & Shopify Tips
Set up a quick sheet or ShopifyQL table to refresh this monthly:
GM% = 1 - COGS% CM1% = GM% - VariableFees% ROAS = Revenue / AdSpend BEROAS = 1 / CM1% Profit = (CM1% * Revenue) - AdSpend - FixedCosts
Track CM1% monthly — it shifts with discounts, returns, shipping, and fulfillment. If your ROAS stays the same but CM1% drops, your break-even rises, shrinking profit fast.
5. Applying It to Growth Strategy
Understanding your break-even ROAS turns marketing from guesswork to math:
- It defines your “profit floor” — how low you can scale before burning cash.
- It lets you test new channels safely (e.g., TikTok, Pinterest) by knowing acceptable ROAS bands.
- It connects marketing to operations — high-margin SKUs raise CM1%, lowering BEROAS and enabling scale.
- It reframes decision-making: efficiency vs. growth is no longer emotional; it’s measured.
For founders, this is one of the most powerful numbers you can know — and it should live on your dashboard beside LTV, CAC, and payback period.
6. Conclusion
Break-Even ROAS is the bridge between marketing metrics and business reality. A brand that understands its unit economics can scale confidently, knowing exactly when “more spend” drives sustainable profit — and when it doesn’t.
When you know your economics, you control growth — not the algorithm.
Want to know your brand’s true break-even ROAS?
I help eCommerce founders analyze their numbers, build growth systems, and scale profitably across acquisition, retention, and operations.
Frequently Asked Questions
What is break-even ROAS?
Break-even ROAS is the return on ad spend at which your contribution margin from sales exactly covers your ad costs (and, if you include them, fixed costs). Below that number, you lose money; above it, you generate profit.
How often should I recalculate my break-even ROAS?
At least monthly. Discounts, returns, shipping rates, and fulfillment costs all affect CM1%, which in turn changes your break-even ROAS.
What is a “good” ROAS for Shopify brands?
There’s no universal good ROAS. A 2.0 ROAS can be very profitable for a high-margin brand, while a 4.0 ROAS might barely break even for a low-margin brand. The only meaningful benchmark is your own break-even ROAS and LTV:CAC.
Should I ever scale below my break-even ROAS?
Sometimes, yes — for short periods — if you are intentionally acquiring high-LTV customers and have enough cash runway. But you should always understand the payback timeline and how long you can sustain negative contribution.
What if my ROAS looks great but I’m still not profitable?
That usually means your CM1% is too low (high COGS, discounts, or fees) or your fixed costs are too high for your current scale. Fix margins and overhead before obsessing over higher ROAS.
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