How to set a target ROAS from your margin

A target ROAS is not a marketing preference. It is arithmetic, and the inputs are your margins — which means a number copied from a competitor, a benchmark article or an agency's deck is close to meaningless for your business.

What is break-even ROAS?

Break-even ROAS is one divided by your contribution margin. At a 25% margin, you break even at 4×. At 50%, you break even at 2×. At 60%, 1.67×. Below that figure the advertising loses money no matter how impressive the revenue chart looks.

Contribution margin is the part people get wrong. It is not gross margin. Take the selling price, then subtract cost of goods, payment processing fees, shipping and packaging you absorb, and your expected return or refund rate. What is left is what an extra sale actually contributes.

Worked example

A product sells for £100. Cost of goods is £45. Payment fees are £2. You ship free at a real cost of £6, packaging is £1, and 8% of these get returned. Contribution before advertising is about £38, so the margin is roughly 38% and break-even ROAS is about 2.6×.

If that account is running a 4× target because someone said 4× is healthy, it is leaving profitable volume on the table. If it is running 2×, it is buying revenue at a loss while the dashboard shows growth. Both mistakes are extremely common and both look fine in a weekly report.

Where should the target actually sit?

Above break-even by enough to cover the overheads that advertising does not pay for — and how far above depends on what you are optimising for:

• Growth, funded deliberately. Target near break-even, accept thin contribution now, and only do this if repeat purchase behaviour genuinely justifies it. Check that it does rather than assuming.
• Profitable scale. Somewhere around 1.3 to 1.5× break-even for most stores. Enough headroom that volume compounds without eating the business.
• Harvest. Well above break-even when cash matters more than growth. Expect volume to fall — that is the trade being made.

Why one target across the catalogue loses money

Almost no store has one margin. A 20%-margin entry product and a 65%-margin flagship need targets that differ by a factor of three, and a single account-level target guarantees you are simultaneously over-investing in one and starving the other.

The fix is segmentation, and in Shopping and Performance Max that means custom labels in the product feed — margin bands, bestseller status, stock depth — with campaigns and targets built per band rather than per catalogue. This is why feed work and bid strategy are the same conversation. More on that on the e-commerce growth page.

What about lifetime value?

If customers reliably buy again, first-purchase break-even understates what you can afford to pay, and a lower target is justified. Two cautions, both learned the expensive way.

First, use actual repeat rates from your order history, not an aspiration. Second, remember that lifetime value arrives over months while ad spend leaves your account today — an LTV-justified target is a cash-flow decision as much as a marketing one, and plenty of stores have grown themselves into serious trouble on a spreadsheet that was technically correct.

The number worth watching instead

Platform ROAS is a steering signal, not a scoreboard. The figure that decides whether any of this is working is contribution margin after advertising: total contribution from all sales, minus total ad spend, across every channel.

It is harder to see, does not appear in any platform dashboard, and is the only one that tells you whether the month was worth having.