ROAS & Break-Even ROAS Calculator

How to calculate break-even ROAS

The headline ratio is simple: ROAS = Revenue ÷ Ad Spend. A ROAS of 4x means £4 of revenue for every £1 spent. But a ratio on its own can't tell you whether a campaign made money — for that you need your break-even ROAS, the point where gross profit exactly covers the ad spend:

Break-even ROAS = 1 ÷ Gross Margin

With a 30% gross margin, break-even ROAS is 1 ÷ 0.30 = 3.33x. Run above 3.33x and each extra pound of spend contributes profit; run below it and you're buying revenue at a loss, however healthy the headline ROAS looks.

Why VAT changes your real ROAS

Most ROAS calculators — nearly all of them US-built — divide revenue by spend and stop. In the UK that quietly overstates your return, because the revenue your ad platform or Shopify reports is usually VAT-inclusive, but your margin is earned on the ex-VAT amount. Net the VAT out first:

Ex-VAT revenue = Revenue ÷ (1 + VAT rate)

Take £1,000 spend and £5,000 revenue including 20% VAT, at a 30% margin. The ex-VAT revenue is 5,000 ÷ 1.2 = £4,166.67. So your headline ROAS is 5.0x, but your true ROAS is 4.17x — and 4.17x is the figure to compare against your 3.33x break-even. Gross profit is 30% × 4,166.67 = £1,250, leaving £1,250 − £1,000 = £250 profit after ad spend. The gap between 5.0x and 4.17x is pure VAT, and it's exactly where a UK advertiser talks themselves into an unprofitable campaign.

One caveat: this nets VAT out of revenue only. Ad spend is treated as ex-VAT, which is right for VAT-registered advertisers who reclaim (or reverse-charge) the VAT on their Google and Meta invoices.

What is a good ROAS?

There's no universal number — a "good" ROAS is simply one comfortably above your break-even. A 4x ROAS is a common rule of thumb, but it's only healthy if your margin supports it: at a 20% margin you need 5x just to break even, so 4x is a loss. Always judge ROAS against 1 ÷ your margin, not against a figure you read in a blog post.

ROAS vs ROI

ROAS compares revenue to ad spend alone. ROI is broader — it weighs profit against all costs: production, fulfilment, overheads and the ad spend. A campaign can post a strong ROAS and still be ROI-negative once those costs land. Break-even ROAS is the bridge between the two: it folds gross margin into the ad-spend ratio, so you're measuring contribution rather than raw revenue.