Calculating break-even ROAS, with the costs that are often missing

Break-even ROAS depends on the value in your account

Break-even ROAS translates the amount in euros that an order may cost in advertising into your account's definition of value. The same €27.25 can mean 2.75, 3.67 or 4.37. It goes wrong as soon as you apply one of these figures to an account that sends something else as the value.

Break-even ROAS = value in the account per order ÷ expected contribution margin per order, before advertising and after returns

The numerator is the value Google calculates with: according to Google, target ROAS works with the conversion values you report through conversion tracking. The denominator is what remains with you after all variable costs. The usual formula of 1 ÷ margin gives the same result, as long as the margin is based on exactly this value and is the contribution margin, not the product margin.

Worked example: an order may cost €27.25

Suppose a shop sells an item for €119 gross, which is €100 net, with free shipping for the customer. 25% of order value comes back, simplified here as whole orders. All figures are invented and rounded.

Expected per order: 0.75 × €44 − 0.25 × €23 = €27.25. With €100 of value in the account, that gives 100 ÷ 27.25 = 3.67.

The common shortcut is margin times (1 minus return rate), here 0.44 × 0.75 = 0.33, which gives a break-even of 3.03. It pretends that a return only costs the lost profit, whereas the returned order actually loses €23. If you use 3.03, you spend €33 and lose €5.75 per order. With the pure product margin of 55%, you would even arrive at 1.82, which would mean a loss of €27.75.

For your own figures, you need the share of value that comes back, measured on orders whose return period has expired. Recent orders push the rate down, because returns are still on their way. If you are missing a figure for handling or loss in value, a rough estimate of your own is better than a silent zero.

Where the inputs go wrong

VAT. Under standard taxation, VAT is not part of the consideration under Section 10 UStG, so the contribution margin is always net. If the account holds gross values, multiply the break-even by the tax factor: at 19%, 3.67 becomes 4.37. In Austria and Switzerland, use the local rate; in Switzerland, calculate in CHF.

Payment fees. They are charged on the gross amount, and part of them stays with you when an order is returned. Stripe does not return the processing fees, and PayPal retains the fixed fee, both as of November 2026. The example applies the full fee, as with Stripe; for your calculation, your mix of payment methods is what counts.

Shipping revenue. If the customer pays for shipping, the revenue only counts on orders that are kept, because on withdrawal you must also refund the payments for standard delivery. Under the same provision, the consumer only bears the return shipping costs if you have informed them about this and do not voluntarily cover them yourself.

Value in the tag. Before you calculate, place a test order and check what arrives: with or without tax, with or without shipping. That determines which row applies:

If you apply 3.67 to an account with gross values, you spend €32.43 per order and lose €5.18, even though the target is met.

If you deduct returns, compare the report for a closed period against 2.75. As a target ROAS, I would still stay at 3.67 to begin with, because deductions arrive late, and I do not rely on bidding seeing all of them in time. The price: with €75 of value in the account, that means about €20.40 of advertising per order instead of the permitted €27.25. How the upload works in practice is covered under sending returns to Google Ads.

What you decide with the figure

Measure ROAS for a closed period in the same value definition as the break-even, and set your target ROAS from the margin above it. Then I apply this rule:

Under this rule, a target ROAS equal to break-even is never the intended state. At break-even, the entire contribution margin goes to advertising, and nothing is left for rent, salaries and profit. Even that zero is shaky, because according to Google the bid strategy tries to achieve an average return on ad spend. In my assessment, the margin matters too: with diminishing returns, the last clicks are below average. If the average sits at break-even, exactly those clicks make a loss.

Check the calculation against real orders: the sum of conversion value in the account divided by the sum of actual contribution margin from the back end, matched on the same transaction IDs, for a period whose return window has closed. From a deviation of around 10%, I would recalculate, starting with returns costs and then the value definition. That is a rule of thumb.

Small baskets raise the break-even

Order values vary widely. Fixed costs per order make the break-even depend on order value. If, in the example, cost of goods, fees and loss in value scale as percentages while shipping and handling stay fixed, it is 3.15 at an order value of €200 and 5.48 at €50. Below about €25, no ROAS is enough.

The target holds the average, not the mix. If, at a target of 3.67, the mix slides towards €50 baskets, an order costs about €13.60 in advertising against €9.13 of contribution margin. That is a loss of about €4.50, even though the ROAS is on target. So look at order value alongside ROAS, and only split product groups if each one keeps enough conversions.

You send contribution margin as the value. According to Google, you specify the value you want to maximise, such as sales revenue or profit margins. The break-even is then 1.0, but only as long as loss-making orders are included with their negative contribution. If you cap them at 0 or do not send them at all, the account counts more than you earn. Suppose 90 orders each bring +€30 and 10 each bring −€10: €2,700 is sent, €2,600 is earned, and the break-even is 2,700 ÷ 2,600 = 1.04, not 1.0. The principle is the same formula: value in the account divided by real contribution margin. After such a switch, the old target ROAS no longer applies, and you set it afresh.

The order would have come in without the ad. Break-even tells you whether attributed orders pay for their advertising, not whether the advertising caused them. With a high share of brand traffic, a ROAS above break-even stands on weak ground; only an incrementality test settles that.