GrowloomHow the calculation works
Contribution margin is the money left from each order after the costs that rise with every sale. Break-even ROAS is one divided by that margin as a share of the selling price. The most you can pay to win a customer without losing money on the first order, your break-even CAC, equals the contribution margin in rupees.
| Step | Formula |
|---|---|
| Contribution margin (₹) | Price − product cost − shipping − payment fees − returns allowance − other costs |
| Contribution margin (%) | Contribution margin ÷ price |
| Break-even ROAS | Price ÷ contribution margin |
| Target ROAS for a profit | Price ÷ (contribution margin − desired profit) |
The default numbers are an example: a ₹2,000 order with a 50% contribution margin breaks even at a ROAS of 2. For a fuller walkthrough, read ROAS, CAC and payback period, and for budgets see Google Ads or Meta Ads: where to spend first.
Frequently asked questions
What is break-even ROAS?
Break-even ROAS is the return on ad spend at which a sale covers its own costs, so advertising neither makes nor loses money on the first order. It is one divided by your contribution margin.
How do I calculate contribution margin?
Take your selling price and subtract every cost that rises with each order: product cost, shipping and packaging, payment fees, returns and refunds, and any other variable cost. Divide what is left by the selling price.
Should I include GST in the selling price?
No. Use the price before GST, because GST is collected for the government and is not revenue you keep. Use the same basis for your ad platform revenue when you compare.
Is a ROAS above break-even always good?
It means the first order makes a profit, but it does not cover overheads such as salaries and tools. If you want a profit after those, enter a desired profit per order to see a higher target ROAS.