The ROAS calculation, in full
Three formulas draw the whole chart. Here they are in full, so you can check them against your own numbers rather than taking the tool on trust.
The simple ROAS calculation
The ROAS calculation everyone quotes is one division. Take the revenue your ads produced, divide it by what you spent on them, and the answer is your return on ad spend:
ROAS = ad revenue ÷ ad spend
Spend $40,000 and bring in $124,000 and your ROAS is 3.10x. Some tools print it as a percentage instead, so the same campaign reads as 310%. Google Ads shows it as a ratio, Meta shows it as a decimal, and they mean the same thing.
That calculation is correct, and on its own it will not tell you whether the campaign made you any money. It counts revenue, and you cannot spend revenue. What you can spend is what survives after the product, the shipping, the payment fee, the refunds and every bill that arrives whether you advertise or not.
What the simple calculation leaves out
A 3.10x ROAS is excellent for one store and bankrupting for another, and the number itself cannot tell you which you are. Two things decide it, and neither appears in revenue ÷ spend.
The first is your contribution margin: what one order actually leaves behind. A store selling at a 70% margin keeps more than twice as much per order as one selling at 30%, so the two need completely different ROAS to survive the same ad bill.
The second is your fixed costs. Rent, salaries and software do not care how much you spend on ads. They have to be paid out of the margin your orders leave, which means the ads have to clear their own cost and make a contribution to the overhead before a single unit of profit exists.
Put those two in and the ROAS calculation stops being a division and becomes a line. The rest of this page is that line, in full.
How the line is built
1 · Contribution margin
What's left of one order after the product, the shipping, the gateway fee and the returns:
CM = (1 − refund%) × (AOV − COGS)
− shipping − gateway fee
Returned orders give the product back but you still ate the shipping and the processing fee.
2 · The break-even line
Revenue × margin must cover the ad spend and every fixed cost:
ROAS = (spend × (1+fee) + fixed)
÷ (spend × CM%)
Every point on that line is a spend/ROAS pair that lands exactly on zero. CPP = AOV ÷ ROAS, so the same line is a CPP ceiling too.
3 · Why it curves
Rewrite it and the shape is obvious:
ROAS = (1+fee)/CM% × (1 + fixed/spend)
Double the spend and you halve the fixed-cost penalty. The line decays toward the floor but never touches it. Scale makes the target easier, never free.
Assumptions: ROAS is measured on gross revenue before returns, the way ad platforms report it. Fixed costs are treated as truly fixed across the spend range. If hiring or warehousing steps up at higher volume, raise the fixed-cost input in step 3 for that scenario. Everything is calculated in your browser; no numbers are sent anywhere.
A worked ROAS calculation
An eyewear store sells at an average order of $120. The frames cost $45, so the gross margin is 62.5%. Shipping is $8 an order, the payment gateway takes 2.9%, and 6% of orders come back. Salaries are $9,000 a month and the rest of the overhead is $5,000, so $14,000 has to be paid before any profit exists.
Start with one order:
| Per order | Amount |
|---|---|
| Order value | $120.00 |
| Product cost (62.5% gross margin) | −$45.00 |
| Shipping | −$8.00 |
| Payment fee (2.9%) | −$3.48 |
| Refunds (6% of orders) | −$4.50 |
| Contribution | $59.02 |
| Contribution margin | 49.2% |
So every $120 order leaves $59.02 behind, and 49.2 cents of every revenue dollar is real. Now put the ads in. At $40,000 of spend, the store needs enough revenue for its margin to cover the $40,000 and the $14,000 overhead:
break-even ROAS = ($40,000 + $14,000) ÷ ($40,000 × 0.492)
= $54,000 ÷ $19,680 = 2.74x
At 3.10x this store is making money. At 2.50x, a number most advertisers would call healthy, it is losing it. The simple ROAS calculation cannot see the difference; this one can.
Why break-even ROAS falls as you spend more
The $14,000 of overhead is the same whether the store spends $10,000 on ads or $160,000. At a small budget that fixed cost is spread over very little revenue, so each dollar of spend has to work extremely hard. As the budget grows, the overhead is spread thinner and the target drops. Same store, same margin, same month:
| Monthly ad spend | Break-even ROAS |
|---|---|
| $10,000 | 4.88x |
| $20,000 | 3.46x |
| $40,000 | 2.74x |
| $80,000 | 2.39x |
| $160,000 | 2.21x |
| Floor, at any spend | 2.03x |
This is the part a single ROAS target gets wrong. A store holding 2.60x is losing money at $20,000 a month and making it at $80,000. The campaign did not change; the arithmetic underneath it did.
The floor your ROAS can never cross
Look at the table again and the drop is slowing: 4.88x to 3.46x is a big fall, 2.39x to 2.21x is almost nothing. The curve is heading somewhere and never arriving. That destination is your floor, and it is one division:
floor = 1 ÷ contribution margin = 1 ÷ 0.492 = 2.03x
No budget on earth gets this store below 2.03x, because at that point the margin on the revenue exactly equals the ad spend and there is nothing left for overhead, let alone profit. If a media buyer promises to scale you to a 1.80x and stay profitable, the floor is the reason that cannot happen.
It also tells you what to fix. The floor moves only when the margin moves: raise the price, cut the product cost, charge for shipping, cut the return rate. Spending more makes the target easier. Only margin makes it lower.
Questions about the ROAS calculation
Is ROAS calculated on revenue before or after refunds?
Ad platforms report it on gross revenue, before anything comes back, so that is what this page uses for the ROAS itself. The refunds are taken out on the cost side instead, inside the contribution margin, which is where they actually land.
What is the difference between ROAS and ROI?
ROAS divides revenue by ad spend. ROI divides profit by total cost. A 4x ROAS can sit alongside a negative ROI without any contradiction, because the first counts money that arrived and the second counts money you kept.
Should the ad platform fee or VAT be in the calculation?
If you pay a media buyer a percentage of spend, or VAT is added to your ad invoices and you cannot recover it, both ride on the ad spend and both raise the line. A 12% agency fee lifts the break-even ROAS by roughly 12%. Both are inputs in the calculator.
Why is my break-even ROAS different every month?
Because it depends on how much you spent that month. The same store has a different break-even at $20,000 than at $80,000, and the number also moves when your average order, margin, shipping or return rate change. A single fixed target cannot stay right.
What ROAS should I actually aim for?
Above your break-even at the spend you intend to run. There is no industry number that answers this, because two stores with the same ROAS and different margins are in completely different positions. Put your own costs in and the line tells you.