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Breakeven Point ROAS

Discover the concept of Breakeven Point ROAS and its significance in measuring the effectiveness of your advertising campaigns. Gain insights into how this metric can impact your business's profitability and marketing strategies. Uncover the factors that determine a good or bad Breakeven Point ROAS and explore actionable steps to improve it. This comprehensive guide will empower you to make data-driven decisions, optimize your advertising investments, and achieve a healthier financial position for your business.

What is Breakeven Point ROAS

Many brands today lack a clear understanding of their unit economics on a product level, leading to wasted resources and reduced profits. Although the cost of running online ads has increased considerably, many businesses are still under-spending due to poor understanding of their Break-Even Point (BEP) Return on Advertising Spend (ROAS). By understanding their BEP ROAS, businesses can make informed decisions about their advertising budgets and maximize their return on investment. In this section, we’ll explore the importance of BEP ROAS and how it can help businesses achieve greater profitability.

Let’s take a business that sells a product for €80. Say they acquired an order for €15, resulting in a 5.33x ROAS. However, to truly grasp their profitability, we need to break down the numbers using the Break Even ROAS (BEP ROAS) formula.

BEP ROAS = (Revenue per product) / (Revenue per product – Total costs per product)

First, let’s tackle the VAT issue. Remember, ad spend numbers don’t have VAT, while the reported revenue does. So, we’re comparing two different things. To get an accurate ROAS, we must remove VAT from the revenue. The ad spend without VAT stays at €15.

VAT (23%)
Revenue without VAT

Now our ROAS is €65.04 ex VAT divided by €15.00 ex VAT. With this adjustment, the real ROAS is not 5.33x, but 4.36x instead.

Next, we need to factor in the costs associated with delivering the product:

Product Cost
Shipping (free shipping threshold surpassed)
3PL fee
Transaction fee (2%)
Our variable costs amount

Now, let’s calculate the BEP ROAS:

BEP ROAS = 65.04 / (65.04 – 30.60) = 1.89
Gross profit
- Costs
Maximum cost per acquisition

By multiplying the gross profit by the BEP ROAS, we arrive back at our generated revenue. In simpler terms, we cannot spend more on the cost per acquisition than the full gross profit generated for this product.

Gross profit
Generated revenue
23% VAT
Revenue with VAT

What is a good Breakeven Point ROAS

Is your Breakeven Point ROAS higher than 1?

A good Breakeven Point ROAS is typically considered to be 1 or higher. This means that for every dollar spent on advertising, you are generating at least one dollar in revenue to cover both your variable and fixed costs, reaching the breakeven point. A higher Breakeven Point ROAS indicates greater profitability, as it signifies that your advertising efforts are generating more revenue than the costs incurred. It is important to continuously monitor and strive to improve your Breakeven Point ROAS to maximize profitability and make your advertising campaigns more effective.

What is a bad Breakeven Point ROAS

Is your Breakeven Point ROAS lower than 1?

A bad Breakeven Point ROAS is typically considered to be below 1. This means that for every dollar spent on advertising, you are generating less than one dollar in revenue, resulting in a negative return on investment. A low Breakeven Point ROAS indicates that your advertising efforts are not generating enough revenue to cover your variable and fixed costs, leading to financial losses. It is crucial to identify the factors affecting your ROAS and take corrective actions to improve it. By optimizing your advertising strategies, refining your targeting, and enhancing your conversion rate, you can work towards achieving a positive and profitable Breakeven Point ROAS.

How to improve Breakeven Point ROAS

Strategies to Improve Your Breakeven Point ROAS

  • Refine your targeting: Ensure that your advertising efforts are reaching the right audience. Conduct thorough market research to identify your target customers and tailor your campaigns to their specific needs and preferences. By narrowing down your target audience, you can optimize your ad spend and increase the likelihood of attracting qualified leads.
  • Optimize your ad creatives: Create compelling and engaging ad creatives that capture the attention of your target audience. Use persuasive language, captivating visuals, and clear calls-to-action to encourage click-throughs and conversions. Regularly test and optimize your ad creatives to identify the most effective formats, messages, and visuals.
  • Improve landing page experience: The landing page plays a crucial role in converting ad clicks into sales or leads. Optimize your landing pages to provide a seamless and user-friendly experience. Ensure that the landing page aligns with the ad’s messaging, has clear and relevant content, and includes prominent calls-to-action. Test different variations of landing pages to identify the highest converting design and layout.
  • Monitor and analyze data: Regularly track and analyze your advertising data to gain insights into the performance of your campaigns. Pay attention to metrics such as click-through rate (CTR), conversion rate, and cost per acquisition (CPA). Identify underperforming campaigns or keywords and make data-driven decisions to optimize your budget allocation and improve your overall ROAS.
  • Implement remarketing campaigns: Implementing remarketing campaigns allows you to target users who have previously shown interest in your products or services. By staying top-of-mind and reminding them of your offerings, you increase the chances of conversions and higher ROAS. Use dynamic remarketing to show personalized ads featuring the products or services users have viewed or added to their carts.
  • Optimize your bidding strategy: Fine-tune your bidding strategy to ensure you are getting the most value out of your ad spend. Consider using automated bidding strategies offered by advertising platforms, such as target ROAS (return on ad spend) bidding or maximize conversions bidding. These strategies leverage machine learning algorithms to optimize your bids based on your desired ROAS or conversion goals.
  • Continuously test and iterate: A/B testing is essential for improving your ROAS. Test different variables such as ad copy, visuals, landing page elements, and targeting parameters to identify the most effective combinations. Make data-driven decisions based on the test results and continuously iterate and optimize your campaigns for better performance.

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