When analysing a Google Ads campaign, one of the most commonly used metrics is ROAS. But looking at ROAS alone can lead to the wrong conclusions if we do not know our Break Even ROAS.
Put simply: a campaign can have a positive ROAS and still not be profitable. That is why it is important to understand both concepts.
What is ROAS?
ROAS, or Return On Ad Spend, measures how much revenue we generate for every euro invested in advertising. The formula is:
ROAS = Revenue generated / Advertising spend
For example:
If we invest €1,000 in Google Ads and generate €4,000 in sales, the ROAS would be:
€4,000 / €1,000 = 4
This means that for every euro invested in advertising, we have generated €4 in revenue.
It can also be expressed as a percentage:
ROAS 4 = ROAS 400%
At first glance, this may look like a very profitable campaign. But there is still one key question to ask: are we actually making money with that ROAS?
What is Break Even ROAS?
Break Even ROAS is the minimum ROAS we need in order not to lose money. In other words, it is the point at which the revenue generated by the campaign covers the product costs, operating costs and advertising spend.
From that point onwards, the campaign starts to become profitable. The most common formula is:
Break Even ROAS = 1 / Profit margin
Here, it is important to work with net margin, or at least with the real margin after deducting the main variable costs.
A simple example:
Let’s imagine we sell a product for €100. Out of those €100, our costs are:
- Product cost: €40
- Shipping and logistics: €10
- Commissions, payment gateway fees or other variable costs: €10
In total, our variable costs are €60. That leaves us with a €40 margin before advertising.
The margin is:
€40 / €100 = 40%
Now we calculate the Break Even ROAS:
1 / 0.40 = 2.5
This means we need a minimum ROAS of 2.5 in order not to lose money.
Put another way: for every euro invested in Google Ads, we need to generate at least €2.50 in sales to break even.
The difference between ROAS and Break Even ROAS
- ROAS tells us how much revenue we are generating for every euro invested in advertising.
- Break Even ROAS tells us how much revenue we need to generate for every euro invested in order not to lose money.
The difference is key:
- ROAS: revenue generated by advertising. Used to measure campaign performance.
- Break Even ROAS: minimum ROAS required to cover costs. Used to understand whether a campaign is profitable.
For example, if a campaign has a ROAS of 3, it may look good. But if our Break Even ROAS is 4, the campaign is losing money. On the other hand, if our Break Even ROAS is 2.5, then a ROAS of 3 would be generating profit.
How to know if a Google Ads campaign is profitable
To know whether a campaign is profitable, it is not enough to look at ROAS in isolation. We need to compare it with the Break Even ROAS.
The logic is simple:
- If the campaign ROAS is higher than the Break Even ROAS, the campaign is profitable.
- If the campaign ROAS is equal to the Break Even ROAS, the campaign is breaking even.
- If the campaign ROAS is lower than the Break Even ROAS, the campaign is not profitable.
Example applied to Google Ads
Let’s assume a campaign has the following data:
- Google Ads spend: €2,000
- Sales generated: €7,000
- ROAS: 3.5
- Real business margin: 30%
We calculate the Break Even ROAS:
1 / 0.30 = 3.33
The campaign has a ROAS of 3.5 and needs a minimum ROAS of 3.33 in order not to lose money. So the campaign is profitable, although with a tight margin.
Why knowing your Break Even ROAS matters
Knowing your Break Even ROAS helps you make better decisions in Google Ads. For example:
- Knowing which campaigns you can scale.
- Identifying campaigns that generate sales but lose money.
- Setting realistic ROAS targets.
- Adjusting bids, budgets and conversion strategies.
- Avoiding reliance on surface-level metrics.
In many cases, the problem is not that Google Ads does not work. The problem is analysing campaigns without knowing the minimum ROAS required for the business to be profitable.
How this applies when working with a CSS like Globerada
In a traditional Google Ads model, the ecommerce business invests directly in its own campaigns. Therefore, it needs to know its Break Even ROAS to understand whether advertising is generating profit or losses.
But when working with a CSS like Globerada, the analysis changes. In our case, Globerada takes on the advertising investment.
In other words, we activate Google Ads campaigns to send qualified traffic to the ecommerce businesses we work with. That is why the campaign’s Break Even ROAS is a metric we need to monitor especially closely.
We need to know from which ROAS level the investment we are making starts to become profitable for our model. If the ROAS is below that point, the campaign may generate sales, but it may not be sustainable for Globerada. If it is above that point, the campaign can be scaled with greater confidence.
The difference lies in who takes on the advertising risk. In a company’s own campaign, that risk is taken on by the ecommerce business. In Globerada’s CSS model, that advertising risk is taken on by us.
That is why, in our case, Break Even ROAS is not just an analysis metric: it is a key tool for deciding which campaigns to maintain, optimise or scale.
If you want to optimise your Ads campaigns, we can help. Did you know we are the number one CSS in Spain? Get in touch.
