Breakeven ROAS and When You Can Scale To Grow

By Bradley Riley
May 16, 2022

Sometimes brands will come to you with growth in mind and a pretty flexible budget.

It’s not too uncommon to get a client that says that they’re willing to spend up to x amount as long as they’re profitable.

Outside of these clients, it’s also really useful to know for every business that you work with, what their breakeven ROAS is.

To put a definition to this term, this is the Return On Ad Spend that a business needs in order to be profitable, after factoring in certain costs.

When calculating a business’s breakeven ROAS, we like to consider:

  • AOV
  • Products per order.
  • Blended Cost of Goods
  • Credit card processor fees.
  • Merchant account fees.
  • Shipping costs.
  • Fullfillment costs.
  • Target margins. 

From there, you can work out the breakeven ROAS that you need to be above and anything over that is spend with growth in mind. 

So if you are above the breakeven ROAS, not only are you profitable- but you are also in a position to spend more to help the business to grow.

Several times, I have had conversations with clients where we consider their current position at a sky-high ROAS and I suggest that there is an opportunity to scale and grow the business. 

Yes, ROAS can decrease at scale but assuming the business can get return customers, that growing customer base will be well worth the investment. I’ll cover this more in a future blog.

The big takeaway here is once you have calculated breakeven ROAS for one of your clients; if you have been consistently outperforming this and there is room to grow- have an open an honest conversation with your client about the opportunity.

Hope this helps!

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