"The campaign is at 3x ROAS." You hear it all the time, and it sounds like success. But it means nothing until you know another number: the return you break even at, the point where you neither make nor lose money. Below it, every sale from ads is a loss, however good the platform numbers look.
What is ROAS?
ROAS stands for return on ad spend:
Spend 1,000 and get 3,000 in sales and your ROAS is 3. The problem is that it counts revenue, not profit, and revenue is not what stays in your pocket.
How to calculate break-even ROAS
The formula is simple:
Gross margin here is what is left of the selling price after product cost, shipping, packaging and payment fees, before advertising.
Worked example
A product sells for 500. It costs you 300 including shipping and packaging. That leaves 200, a 40% margin.
- Break-even ROAS = 1 ÷ 0.4 = 2.5
- Anything below 2.5 loses money. A ROAS of 3 is profitable, but only slightly.
The same 3x ROAS on a product with a 25% margin (break-even at 4) is a net loss. That is why ROAS cannot be compared between businesses, and why no campaign can be judged without knowing the margin.
The maximum cost per order you can afford
The other way of looking at the same calculation: how much can you pay in ads for one order?
In the example: 500 × 0.4 = 200. A cost per order of 200 breaks even, 250 loses, 120 makes money.
Any media buyer should know this number before judging a single campaign.
The adjustment everyone forgets: cash on delivery
In Egypt and many Gulf markets, a submitted order is not a sale. Some orders are refused at the door or never answer the phone. The ad platform counts the order when it is placed, not when it is collected.
So the calculation must be adjusted for delivery rate:
If an order costs 120 and the delivery rate is 66%, the order that actually arrives costs about 182, not 120. Add the return shipping you pay on refused orders.
On an Egyptian online store I worked on, the rejection rate was 34%. Roughly a third of the budget was being spent on orders that never arrived, while the reports said the campaigns were winning. Bringing rejection down to 16% raised collected revenue by 72% on an 8% budget increase. The method is in reducing cash-on-delivery returns.
Repeat customers change the maths
If customers buy more than once, judging ads on the first order alone makes you more cautious than you need to be. In that case you calculate on customer value over a period (90 days or a year) rather than the first order.
At a Saudi gold retailer, repeat purchase rose from 8% to 21%. That means the same acquisition cost now carries more, because the customer comes back. But careful: this needs real repeat-purchase data, not optimistic assumptions.
Practical steps
- Calculate the real gross margin for each main product or category, after shipping, packaging and payment fees.
- Calculate break-even ROAS and maximum cost per order for each.
- If you sell cash on delivery, adjust by your actual delivery rate from the courier.
- Judge campaigns on the adjusted numbers, not the platform's.
- Recalculate monthly, because margins, shipping rates and delivery rates change.
The bottom line
A successful campaign is not one with a high ROAS. It is one whose ROAS is above your own break-even, after returns and real costs. If you do not know that number, you do not know whether your ads make or lose money.
The home page has an interactive calculator to estimate these numbers, and if you want your ad accounts reviewed on this basis, get in touch from the freelance media buyer page.