The numbers
ROAS: why the number alone means nothing
The break-even point of advertising, how to calculate it, and the calculation that changes everything if you sell services.
5 min read4 partsFree
01What it is and what it doesn't tell you
ROAS is how many pesos you bill for each peso you put into advertising. You invest $100,000 and bill $400,000: ROAS 4. It's a division; there's no mystery.
What it doesn't tell you is whether you made money. And that's the problem: a ROAS of 3 can be excellent or ruinous, and the number alone doesn't let you know which.
What decides it is your margin, which the platform doesn't know and never will.
02The break-even ROAS
It's the minimum ROAS to avoid losing money. Below it, every sale you make with ads costs you more than it leaves you.
It's nobody's opinion, it's a division: if you keep $25 out of every $100 you sell before advertising, you need to bill four times what you spend to break even.
- Break-even ROAS = 100 ÷ margin on the sale
- 25% margin → ROAS 4 to break even
- 40% margin → ROAS 2.5
- 50% margin → ROAS 2
- 80% margin → ROAS 1.25
| Margin | Break-even | With ROAS 3 you are… |
|---|---|---|
| 20% | 5.0 | Losing quite a bit |
| 25% | 4.0 | Losing |
| 33% | 3.0 | Just breaking even |
| 40% | 2.5 | Making money |
| 60% | 1.7 | Making good money |
| 85% | 1.2 | Making a lot of money |
Do
- Calculate your break-even ONCE and write it down. It's the number you'll read everything else against.
- Recalculate it if you change prices, supplier or how you get paid.
- Always show it next to the ROAS. A number without its reference can't be interpreted.
Avoid
- Comparing your ROAS with another business's. If you don't know their margin, the comparison means nothing.
- Using the markup in the formula instead of the margin. It gives an optimistic, false break-even.
- Chasing «high ROAS» as an abstract goal. The goal is profit, and sometimes you make more with a low ROAS and lots of volume.
03When ads bring contacts and not sales
If you sell services, the platform shows you the cost per contact. Nobody shows you the cost per SALE: it depends on how many of those contacts end up buying, and only you have that number.
Comparing the cost per contact against the ticket is what makes a money-losing campaign look cheap, and also, the other way around, what makes someone kill a profitable campaign thinking it's expensive.
- Cost per sale = cost per contact ÷ close rate
- Contacts at $1,000 with a 20% close rate: each sale costs $5,000
- Contacts at $4,000 with a 10% close rate: each sale costs $40,000
- THAT is the number you compare against the ticket, never the other one
Do
- Write down how many contacts come in and how many close. Without that you can't read any services campaign.
- If your close rate goes up, your cost per sale goes down without touching the ads. Working on closing usually pays more than optimizing ads.
Avoid
- Deciding on the cost per contact. It's the most visible number and the least useful.
- Guessing a close rate. Count it.
04The two target ROAS that coexist, and which one to use
You'll hear two different criteria for setting the ROAS to aim for, and it's worth knowing they're different things before they confuse you.
The first is math: the break-even, which comes from your margin. It's the exact floor: below it you lose, above it you win. There's nothing to argue.
The second is a much more demanding rule of thumb from the trade: with a 120% markup, aim for ROAS 10; with a 50% markup, aim for ROAS 40. It's an ambitious goal to reach in about six months, not a profitability threshold.
Both are useful, for different things. Use the math to know whether you're losing money. Use the rule of thumb as a north star for where you want to get. Mixing them up is what makes someone believe they're losing when they're actually winning.
Break-even (math)
- Comes from your margin: 100 ÷ margin
- It's the exact floor
- Below it you lose money, no question
- Use it to decide whether to turn something off
The target (rule of thumb)
- Comes from experience in the trade
- Much more demanding than break-even
- It's a 6-month goal, not a threshold
- Use it to know where to aim
Case
Two businesses with the same ROAS
Both close the month at ROAS 3. One is making good money and the other is losing money on every sale.
- The first sells a digital product: 85% margin, almost no variable cost. Its break-even is 1.2. At 3, every peso invested comes back more than doubled in clean profit.
- The second is an online store with a 25% margin after fees and taxes. Its break-even is 4. At 3, it's below: it loses on every sale it makes with ads.
- The platform's number is identical: 3. The only thing that changes is the margin, which the platform doesn't know.
- If both looked only at ROAS, the second would be scaling its loss convinced it's doing well.
A ROAS without the margin next to it can't be interpreted. That's why SYB never shows ROAS alone: it shows its break-even next to it, calculated with your real costs.
Try it with your numbers
You keep per month
$ 400,000
33 sales · $ 1,333,333 billed
ROAS
6.67
break-even 2.22
Cost per sale
$ 6,000
15% of the ticket
Sales
33
out of 33 results
Profitable ceiling
$ 12,800,000
above this, you lose