How break-even ROAS is calculated
Break-even ROAS is the return on ad spend at which an order pays for its own advertising and nothing more. The calculator gets there in layers, all per delivered order.
| Number | How it is worked out |
|---|---|
| Net revenue | Order value ÷ (1 + GST rate) |
| CM1 | Net revenue − product cost |
| CM2 | CM1 − shipping − freight both ways on orders that come back − payment gateway and COD fees |
| CM3 | CM2 − marketing per order placed ÷ share of orders delivered |
| Break-even ROAS on net revenue | Net revenue ÷ CM2, the same as 1 ÷ CM2% |
| Break-even ROAS on your dashboard | Order value with GST ÷ (CM2 × share of orders delivered) |
The second break-even number is the one to compare with Meta Ads Manager or Google Ads. In India, prices include GST, so the order value your store sends to the ad platforms usually includes it. The platforms also count every order placed, including COD orders that never arrive.
A worked example
A customer pays ₹1,770, which is ₹1,500 plus 18% GST. The product costs ₹525, so CM1 is ₹975. Shipping is ₹90, 3 in 100 orders come back at ₹180 of freight each (about ₹6 per delivered order), and the payment gateway takes 2% of ₹1,770 (₹35). CM2 is ₹844, or 56% of net revenue. Break-even ROAS is ₹1,500 ÷ ₹844 = 1.78 on net revenue, and ₹1,770 ÷ (₹844 × 0.97) = 2.16 on the ads dashboard.
A calculator that uses 1 ÷ gross margin would say 1.54. At a ROAS of 1.8, that brand would think it was making money. It would be losing about ₹165 on every order.
Where to find each number
| Number | Where to find it |
|---|---|
| Average order value | Shopify Analytics, for the last three months. It includes GST. |
| Product cost | Your purchase price or manufacturing cost per order, plus packaging |
| Shipping and fulfilment | Your courier invoices and warehouse charges ÷ orders shipped |
| COD share and RTO | Your shipping platform’s reports, such as Shiprocket’s |
| Marketing per order placed | All marketing spend in the period ÷ all orders placed, including COD orders that didn’t arrive |
| Cost to win a new customer | Spend on acquiring new customers ÷ new customers won in the same period |
What the numbers mean
CM1, CM2 and CM3 are contribution margin in three layers: after product cost, after delivery and payment, and after marketing. Not everyone uses the same labels. Some put marketing in CM2. My guide to CM1, CM2 and CM3 has a translation table, and shows how COD, RTO and repeat orders change each layer.
If CM3 is negative but the second order pays back acquisition cost, the business can still grow profitably, as long as customers reliably come back. That is the job of retention. To see what a customer is worth over time, use the customer lifetime value calculator.
Questions about break-even ROAS
What is break-even ROAS?
Break-even ROAS is the return on ad spend at which the profit from an order exactly covers the ads that won it. Below it, every order you buy loses money. Above it, each order contributes to fixed costs and profit.
How do you calculate break-even ROAS?
Divide net revenue by CM2, the contribution left after product cost, shipping, RTO and payment fees. That is the same as 1 ÷ CM2%. To compare with Meta or Google, use the order value including GST and multiply CM2 by the share of orders actually delivered.
Why not use 1 ÷ gross margin?
Gross margin leaves out shipping, payment fees, COD charges and RTO, which all come out of every order. Using it gives a break-even ROAS that is too low, so campaigns that lose money look profitable.
What is a good ROAS for a D2C brand in India?
There is no single good ROAS. It depends on your margins. A brand with a high CM2 can break even at a lower ROAS than one with expensive products or heavy RTO. Work out your own break-even, then add the margin you want to keep.
How does COD affect break-even ROAS?
COD orders that come back earn nothing but still cost freight both ways and the ads that won them. A brand where a quarter of COD orders come back needs a much higher ROAS to break even than one selling prepaid.
What are CM1, CM2 and CM3?
They are contribution margin in three layers. CM1 is net revenue minus product cost. CM2 also takes off shipping, RTO, returns and payment fees. CM3 also takes off marketing. Fixed costs come off after CM3 to reach EBITDA.
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