How to Calculate Break-Even ROAS for a UK E-commerce Store

The hard part is using the right numbers. This guide walks through each one with a worked UK example and gives you a template to copy.

What ROAS actually measures

Google defines target ROAS as “the average conversion value (for example, revenue) you’d like to get for each dollar you spend on ads” (Google Ads Help). Meta reports purchase ROAS on the same basis: conversion value divided by spend.

Two things follow from that definition:

1. ROAS is a revenue ratio, not a profit ratio. A 4x ROAS on a product with a 20% margin loses money. A 2x ROAS on a product with a 70% margin can be very profitable.
2. “Conversion value” is whatever your tracking sends. Depending on how your Shopify, WooCommerce or Magento integration is set up, that value may include or exclude VAT, shipping charges and discounts. You need to know which before any target means anything.

Step 1: Work out contribution margin per order

Contribution margin is what’s left from an order after the costs that rise with each sale, before advertising and fixed overheads. For a typical online store, deduct:

• VAT: collected for HMRC, not your income. The UK standard rate is 20% (GOV.UK); some goods carry reduced or zero rates.
• Cost of goods: landed cost per unit, including inbound freight and duties.
• Fulfilment and delivery: pick, pack, packaging and the carrier cost you actually pay, minus any delivery charge the customer pays you.
• Payment processing: your gateway’s percentage and fixed fees.
• Returns and refunds: an allowance based on your historical return rate and what a return actually costs you.
• Discounts: if your typical order uses a code, use the discounted revenue.

Leave out rent, salaries, software and agency fees. They matter for overall profitability, but they don’t change with one extra order, so they belong in a separate overhead target (covered below).

Step 2: A worked UK example

Hypothetical store. Every figure is an assumption for illustration; replace each one with your own.

Now divide revenue by contribution:

Same store, same products, same costs: two different break-even figures. If your platform reports VAT-inclusive revenue, a campaign showing 2.3x is losing money, even though it beats the 2.15 a net-based spreadsheet might give you.

Another way to see it: at break-even, you can spend up to £23.30 in advertising to win this order. That figure, your maximum allowable cost per acquisition, is often easier to brief to a team than a ratio.

Step 3: Match the number to what your platforms report

Before setting any target, check what your conversion value contains:

1. Place a test order, or inspect a recent one, and note the order total, VAT, shipping and discount.
2. Compare it with the value recorded for that purchase in Meta Events Manager, Google Ads conversions or GA4.
3. Choose one basis, ideally net of VAT, and use it consistently across your platforms and your spreadsheet.

If the values don’t match the order, fix the tracking before optimising campaigns. Bidding algorithms optimise towards whatever value they receive, so inflated or inconsistent values steer spend in the wrong direction. This is a large part of what our analytics and tracking work covers.

Step 4: Turn break-even into a working target

Break-even is a floor, not a goal. To set a target ROAS that leaves profit after ads, decide how much contribution you want to keep per order. Continuing the example, if you want to keep 10% of net revenue (£5) per order after advertising:

Google Ads takes target ROAS as a percentage, so 2.73 becomes 273% (Google Ads Help). Set it only after confirming which revenue basis your conversion values use.

When it’s reasonable to run below break-even

Break-even ROAS measures the first order only. Running some campaigns below it can be rational when:

• Repeat purchase is proven. If your own data shows customers reliably reorder within a few months, the first order can carry part of the acquisition cost. Use actual cohort data, not hopeful averages.
• You are deliberately buying new customers. Prospecting usually shows lower platform ROAS than retargeting, because retargeting gets credit for people already likely to buy.
• You are testing. A new product or audience may need a defined learning budget.

It is not reasonable when it simply hasn’t been measured. Set a limit in advance, for example “prospecting may run at 0.8× break-even for 60 days if 90-day repeat revenue covers the gap”, and review against real results.

Beyond break-even: check the whole business

Platform ROAS is useful for steering campaigns, but each platform counts only the conversions it attributes to itself, and platforms often claim the same sale. Pair it with a business-level check:

• MER (marketing efficiency ratio): total revenue ÷ total ad spend across all channels, from your store’s own figures.
• Contribution after marketing: total contribution margin minus total ad spend. This must cover your fixed overheads before you’re profitable.

If platform ROAS looks healthy but contribution after marketing is shrinking, attribution is overstating results or your margin assumptions are out of date.

Common mistakes

A template you can copy

Where to go from here

If you calculate your break-even and find your campaigns sit below it, the fix is rarely just “cut spend”. It might be tracking that inflates revenue, campaigns that need restructuring by margin, or a conversion rate problem better solved through conversion rate optimisation.