Free tool
The single most useful number in paid ads: the ROAS where a campaign pays for itself. Enter your gross margin to find it.
Revenue minus cost of goods, as a percentage of revenue.
Break-even ROAS
-
Enter your margin to calculate.
Break-even ROAS is the return on ad spend at which a campaign exactly covers the cost of the product it sold. Below it you are losing money on every sale; above it you are making money. It is the line every campaign should be measured against, and it is set entirely by your margin.
The formula is break-even ROAS = 1 / gross margin. If your gross margin is 40%,
your break-even ROAS is 1 / 0.40 = 2.5. Every dollar of ad spend needs to bring
back at least $2.50 in revenue for that campaign to pay for itself, before you have made a cent
of profit.
Plenty of advertisers target a 3x or 4x ROAS because it sounds healthy, without knowing where their own break-even sits. A high-margin business leaves money on the table by bidding too conservatively; a low-margin one bleeds cash while its dashboard looks fine. Once you know your break-even, you can bid to it. And because your true ROAS is usually higher than the pixel reports, feeding the platform your real conversions, as Trakt does, lets you bid closer to break-even safely. See how it works.
Connect a store, run Trakt in shadow mode, and compare it against your ad account before you change a thing.