Break-even ROAS from contribution margin
Compare advertising revenue with the margin left to cover advertising cost.
Method
ROAS = attributed revenue ÷ advertising spend. For a simplified break-even threshold, first calculate contribution margin before advertising: (revenue − variable product, fulfilment and payment costs) ÷ revenue. Break-even ROAS is 1 ÷ that margin as a decimal. Keep advertising outside those variable costs or it will be counted twice.
Worked example
Revenue is 10,000 and pre-ad variable costs are 7,000, leaving a 30% contribution margin. Break-even ROAS = 1 ÷ 0.30 ≈ 3.33×. If an ad campaign produces 5,000 revenue for 1,000 spend, ROAS is 5× and modeled contribution after advertising is 5,000 × 0.30 − 1,000 = 500, before fixed costs.
What to check
Attributed revenue may differ from incremental revenue. Refunds, taxes and attribution windows need consistent treatment. A 500 contribution is not final net profit; overhead and other costs still matter. The formula is undefined at zero contribution margin and does not rescue a product with negative contribution.