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The formula, in three lines
- Contribution margin = gross margin % − (shipping you pay ÷ average order value) − payment fees %.
- Break-even cost per purchase = average order value × contribution margin.
- Break-even ROAS = 1 ÷ contribution margin.
Contribution margin is the share of each order you keep after the costs that come with it, before ads. Break-even cost per purchase is the same thing in dollars: the most you can pay Meta for an order without losing money on it. Break-even ROAS turns it into the number Ads Manager reports.
Every Off Retainer plan for an online store sets its targets with these formulas. The break-even ROAS calculator runs them for you.
A worked example
Hypothetical example. A store’s average order is A$100. Its gross margin after product cost is 60%. It pays A$10 to ship an order, and 2% in payment fees.
Contribution margin = 60% − 10% − 2% = 48%. It keeps A$48 of every order before ads.
Break-even cost per purchase = A$48. Break-even ROAS = 1 ÷ 0.48 = 2.08x.
Notice what shipping and fees did. On gross margin alone, this store would think it breaks even at about 1.7x. The real figure is 2.1x. Most owners who think their ads are profitable at “2x” have left shipping out.
Why “2x” can lose money
At a ROAS of 2.0x, every A$100 order costs A$50 in ads. The store above keeps A$48 of that order before ads. So each sale loses A$2, and the more Meta sells, the more the store loses.
Now flip it. Take a second hypothetical store with a 70% gross margin, A$8 shipping on a A$100 order and 2% fees keeps 60%, and breaks even at about 1.7x. For that store, 2x is profitable. Same ROAS, opposite result. That’s why there’s no single “good ROAS” for Australian stores. There’s only yours.
Break-even is the floor, not the target
Aiming at break-even leaves no room for refunds, discounts or a bad week. Our plans set a target cost per purchase 20% under break-even, after giving some credit for repeat orders. Then:
- Target ROAS = average order value ÷ target cost per purchase.
- In the example, the target is A$38.40 per purchase, a ROAS of about 2.6x.
Treat the target as a starting point. Reset it after your first two weeks, or 30 purchases, of your own results.
Build in returns and refunds
Meta counts a purchase when the order is placed. None of the main store platforms sends refunds or returns back to Meta, so they never come off Meta’s numbers. If you refund a meaningful share of orders, multiply your contribution margin by (1 − your return rate). Fashion stores feel this most. Then use net sales, after refunds, whenever you check results.
Check it against MER, not only Meta’s ROAS
Meta’s ROAS counts sales within its attribution window, including some you’d have made anyway. So compare your break-even with MER: total store sales ÷ total ad spend, from your store platform.
- MER at or above your target: the spend is paying its way.
- MER below your break-even ROAS: the store loses money after ads, whatever Ads Manager says.
There’s a second check. MER includes sales you’d make without ads, so your ads also need to lift sales above your usual week. To pay for themselves, they need to add at least weekly ad spend × break-even ROAS in store sales, above your baseline. At A$300 a week and a break-even ROAS of 2.08x, that’s about A$624 a week. ROAS vs MER sets out the weekly routine.
When you can’t reach break-even
If Meta’s likely cost per purchase is higher than your break-even, that’s an offer problem, not an ads problem. Better targeting can’t fix the maths. Change the offer before you raise spend:
- Lift the order value. Bundles, sets, or a free-shipping threshold a little above your average order. Work out the new margin first: free shipping comes out of the margin on every qualifying order.
- Lead with your highest-margin product.
- Cut what each order costs you: shipping, packaging, payment fees.
- Test a higher price. A small rise can do more than better ads.
- Don’t discount your way out. At thin margins, a sale can push every order below break-even. Under the Australian Consumer Law, a “was” price must be one customers actually paid, for a reasonable period before the sale.
The results below show what that looked like for two clients’ stores.
Where to go next
Get your own numbers from the calculator. Plans for online fashion, beauty and skincare, jewellery and accessories and home and lifestyle stores set your targets from these formulas, plus your category’s own rules. Then take the free 3-minute quiz: for an online store, its diagnosis shows your break-even ROAS alongside the causes most likely holding your ads back.