Break-even ROAS per product: why one target hides losses

Break-even ROAS = 1 ÷ contribution margin. Take a product that sells for €100.00 excl. VAT, with €60.00 of cost of goods and €15.00 of other variable costs per order. That leaves €25.00, a 25% margin, so the product needs 1 ÷ 0.25 = 4 to break even: every €1.00 of ads has to bring in €4.00 of revenue. The break-even ROAS calculator does this sum for you.

The widget below is a one-product version of the break-even ROAS calculator, so swap in your own numbers. At a current ROAS of 3.5 the example sits under its 4 break-even and loses €3.57 of every €100 of revenue once the ads are paid.

The same number in other shapes: price ÷ contribution per order (€100.00 ÷ €25.00 = 4), and 400% in Google Ads, which writes ROAS as a percentage. Run Google Shopping on one ROAS target for the whole account and that target is an average. Averages are generous: they let one product lose money on every sale while its neighbours pick up the bill. Three products in one campaign show how it happens, and what to do with each.

What is break-even ROAS?

Break-even ROAS is the ROAS at which a sale pays for everything it cost you, including the ads that brought the buyer. Below it, the sale loses money. Above it, the sale adds profit before fixed costs.

In profit terms the same test is POAS, which equals ROAS × contribution margin, so break-even POAS is 1.0. Divide a product’s ROAS by its break-even ROAS and you get its POAS, which puts every product on one scale. POAS vs ROAS explains when to use which.

How do you calculate break-even ROAS for each product?

Subtract the variable costs of an order from the price excl. VAT, divide what is left by the price to get the margin, then divide 1 by that margin. Every product needs the same four inputs, and you can usually find them without a new report. The extra work is repeating the sum for each product instead of once for the account. The four-step version is in what is a good ROAS, and the margin calculator works out one product’s contribution margin from these inputs.

• Price excl. VAT: from your product feed or shop backend. Feed prices in most European countries include VAT, so for 21% VAT divide by 1.21.
• Cost of goods: the purchase price per unit, from supplier invoices or the cost field in your shop or ERP.
• Shipping, packaging and pick and pack: the average cost per order from carrier and warehouse invoices, or per product where weight changes it.
• Payment fees and returns: fees from your payment provider’s statements. For returns, the share of orders returned multiplied by what handling one costs.

Do your best sellers first. They take the biggest share of budget, so a wrong target there is the expensive kind of wrong.

One account target hides losing products

The target is an average, and the profit of some products pays for the losses of others. Take three products in one Shopping campaign with an account target ROAS of 400%. Each spends €1,000 on ads over six weeks. The data is made up, but the arithmetic is real. Product A has a 20% margin, so it breaks even at 1 ÷ 0.20 = 5. B has a 50% margin and breaks even at 2. C has a 35% margin and breaks even at 1 ÷ 0.35 = 2.9.

Measured against the 400% target, A is the winner and B and C are the problem. Against their own break-even, A is the only one losing money. Profit after ads is revenue × margin − ad spend, and POAS is ROAS ÷ break-even ROAS (A: 4.5 ÷ 5.0 = 0.90). This table shows what each product earned from its €1,000 of ads, before fixed costs:

A loses €100 even though it is the only product beating the target. B and C make €500 and €85. Together the three return 3.5 on €3,000 of ads against a combined break-even of 3, so the account report looks fine.

A campaign steered towards a target ROAS of 400% backs A and treats B and C as the ones missing target. Those are the products you would be tempted to give lower priority, and that is the wrong way round.

Act on each product’s distance from break-even

Group products by how their ROAS compares with their own break-even, then act per group. To run this check on many products at once, download the per-product break-even sheet (XLSX, free, no sign-up). Unlike the widget above, it gives each product a verdict and adds an account summary that compares the blended ROAS with the account break-even and shows the loss buried in the average. The five sample rows are illustrative data.

A sits below break-even, so lower its priority or fix the price or costs first. At 4.5, A needs a margin of 1 ÷ 4.5 = 22.2%. At a €100.00 price that means costs falling from €80.00 to €77.78 per order, a saving of €2.22.

Before you demote it, check what its visitors go on to buy: product journeys show purchases of other products after entry through a product, and a product that looks weak on its own can still contribute across the whole journey. If you keep a loss-making product, make that a decision you wrote down, not an accident of the average.

B has clear headroom. Increase its priority so it gets more of the budget, because it can afford it: B can drop from 3 to 2 and still pay. Move in steps and check each week, because ROAS can fall as spend grows, as the next section shows.

C is close to break-even. Keep it running and check it weekly, allowing for conversion lag. Its 3.1 sits only 0.2 above 2.9, so a small change in price or costs can erase it.

Three products fit on a napkin; three thousand do not. That is the job of Product Segmentation: Product Metrics ML places each product in one of six segments by its ad clicks and its ROAS or POAS, so once margins are connected a product like A is judged on POAS instead of being flattered by its ROAS. The segment reaches your campaigns as a Merchant Center label after you approve it.

Average ROAS can clear break-even while the last euros lose

Average ROAS can sit above break-even while the last euros of spend lose money, because each extra euro earns less than the one before. Marginal ROAS is the extra revenue you get from extra spend, and Google’s help pages describe the same idea as marginal return on investment (see the sources below). Take B, which has a 50% margin and a 2 break-even, and raise its weekly spend in steps of €1,000:

Profit peaks at €2,000. The third €1,000 returns only 1.8, below the 2 break-even, so it loses €100 (€1,800 × 50% − €1,000). Yet average ROAS stays above 2 until €5,000, so at €4,000 the product looks healthy at 2.1 while profit has fallen from €700 to €200.

So keep increasing priority while marginal ROAS is above break-even, and stop where the two meet. No report shows marginal ROAS. Estimate it by comparing weeks before and after a change in spend: extra revenue ÷ extra spend, allowing for conversion lag and for changes in demand.

Break-even moves with price and costs

Product C shows how fast. At €100.00 with €65.00 of costs, its break-even is 2.9. Put it on 10% off and the price falls to €90.00 while the costs stay at €65.00. The margin drops from 35% to 27.8% and break-even rises to 3.6, above C’s 3.1. The sale now loses money on every order.

Higher shipping or payment fees and returns work the same way: they add cost without adding price. What is a good ROAS works through price, costs, discounts and returns with numbers of their own, and the calculator has fields for returns, shipping and fees.

Setting it up in Google Ads

Split your products into groups by break-even ROAS, give each group its own campaign, and set the target ROAS on the campaign. Google documents target ROAS as a setting of one campaign (a standard strategy) or of several campaigns together (a portfolio strategy), not of a single product (About Target ROAS bidding). In Google Ads that works out as four steps:

1. Label the groups: Google says custom labels, custom label 0 to 4, create filters for Performance Max, Shopping and Demand Gen campaigns, with one value per attribute for each product (custom label attribute). Give products with a similar break-even the same label, for example 5, 2.9 and 2 bands.
2. One campaign per group: filter each campaign on its label and set its target ROAS there. Google lists portfolio strategies as unavailable for Performance Max and not applicable to Shopping campaigns with target ROAS, so each campaign carries its own target. Targets for individual ad groups exist, but Google says that is not recommended because it can restrict Smart Bidding.
3. Start at the floor of the group: use the highest break-even in the group as its lowest target and enter it as a percentage: a break-even of 5 becomes a target ROAS of 500%, and 2 becomes 200%. These are floors; the goal sits above them. How to set a target ROAS from your margin adds the profit you want to keep, and the break-even ROAS calculator gives each floor.
4. Check the conversion minimum: Google lists at least 15 conversions in the past 30 days for target ROAS on Search and Shopping campaigns, and says a target set too high may limit traffic. A group too small to reach that minimum is better merged with its neighbour.

Google’s pages describe the target at campaign level. They do not describe a separate target for an asset group or listing group, so the documented way to get a different target is a different campaign. Keep the number of groups small: Google warns that average ROAS inside a narrow segment can mislead, and that asset groups with a lower ROAS still contribute to the campaign’s goals, so it does not recommend removing them on that basis. Compare each group with its break-even and its marginal return instead.

Check the ROAS you compare against

The comparison only holds if the ROAS in Google Ads is on the same basis as your margin. If conversion values include VAT, every product looks better than it is, so use the same VAT basis for both.

A purchase that never reaches Google Ads also lowers the ROAS you see, so a product can look below break-even when it is not. Full Signal Tracking sends conversions server-side from your own domain. To check what your own setup records, run the ad blocker conversion tracking test in your browser and decode a request with the SDK debugger.

From break-even to a target

Once you have each product’s break-even, how to set a target ROAS from your margin turns it into a target with profit left over. Tracking profit rather than revenue? POAS vs ROAS covers the switch. In Shopping campaigns, how to optimise Google Shopping ads applies all of this product by product, and Performance Max for ecommerce does it for Performance Max.

Sources

• About Target ROAS bidding, Google Ads Help: campaign and portfolio levels, percentage notation, the 15-conversion minimum.
• Custom label attribute, Google Merchant Center Help: custom labels as campaign filters.
• Optimizing for marginal ROI instead of average ROI, Google Ads Help: marginal and average return.
• About asset group reporting for Performance Max, Google Ads Help: asset groups with a lower ROAS still contribute to campaign goals.
• Contribution margin ratio, AccountingTools: contribution margin counts variable costs only.