How the calculation works
Break-even ROAS is the point where the ad spend on a sale equals the profit that sale makes before ads. Below it, every sale costs you money. Above it, you keep something.
Profit before ads = (1 − returns rate) × (price ex VAT − product cost) − payment fees − other costs
Break-even ROAS = conversion value ÷ profit before ads
Target ROAS = conversion value ÷ (profit before ads − the profit you want to keep)
The conversion value is whatever Google Ads records for the sale, which is why the VAT setting matters. More on that below.
A worked example
Take a product that sells for £50 including VAT. It costs £15 to buy in, payment fees are 2% plus 20p, packaging and pick and pack come to £2, and one order in ten comes back.
The price ex VAT is £41.67, so gross margin looks like a healthy 64%. On that number alone, you'd put break-even ROAS at about 1.56.
Once fees, returns and packaging come off, each order leaves £20.80 to spend on ads. If the conversion value Google Ads sees includes VAT, that's £50 of value against £20.80 of profit: a break-even ROAS of 2.40.
So a target ROAS of 200% looks comfortably profitable on gross margin, and actually loses about £4.20 on every sale. These are the numbers loaded in the calculator above, so change them and watch it move.
Why your conversion value matters
Google Ads works out ROAS from the conversion value your tracking sends it. If that value includes VAT, part of it (a sixth of the total, at 20%) belongs to HMRC, not you, and was never available to spend on ads.
Returns are the other blind spot. Unless you upload conversion adjustments, Google Ads keeps counting the value of orders that were later refunded. That's why returns sit inside the profit figure here rather than coming off the conversion value.
Not sure what your tracking sends? Pick a recent order, find the matching conversion in Google Ads, and compare the two values. It takes five minutes, and it's one of the first things I check in an audit.
What this calculator leaves out
Shipping. I've left it out to keep things simple. If you pay for delivery yourself, or your conversion value includes a delivery charge, your real break-even point will be different.
Fixed costs. Rent, salaries, software and agency fees aren't in here. Break-even means each sale covers its own costs, not the whole business.
Repeat purchases. This assumes a one-off buyer. If customers reliably come back, there can be a case for running some products below break-even on the first order, but that's a different calculation.
Running Black Friday discounts? Every pound off the price comes straight out of the profit in the formula above, so break-even ROAS climbs fast. My Black Friday PPC checklist covers what to change before the peak.
Common questions
What is break-even ROAS?
The return on ad spend at which the ad cost of a sale equals the profit that sale makes before advertising. Run below it and you lose money on every sale.
Can I just use 1 ÷ gross margin?
It's a common shortcut, but it ignores payment fees, returns, packaging and, if your conversion value includes VAT, VAT as well. It nearly always comes out too low, which means bidding more aggressively than you can afford.
Is break-even ROAS the same as target ROAS?
No. Break-even is the floor where you make nothing. Your target ROAS in Google Ads should sit above it by enough to leave the profit you actually want, which is what the profit setting in the calculator works out.
What is a good ROAS?
There isn't one number. A good ROAS is one comfortably above your own break-even, so a ROAS of 3 can be excellent for one shop and loss-making for another. Find your floor first, then judge performance against it. I go into this in more detail in what's a good ROAS.
Should I set this per product or for the whole shop?
Margins vary across most catalogues, so a single shop-wide target ROAS usually overbids on low-margin products and underbids on high-margin ones. Grouping products by margin in your feed, using custom labels, and giving each group its own target usually works better.