How to work out the ROAS your business actually needs
A 5x ROAS sounds great, but the number that matters is your break-even point. Here is a simple formula to find it, and how to set targets that grow profit, not just revenue.
ROAS, or return on ad spend, is the revenue your ads bring in divided by what you spent on them. Spend Rp 10 million, make Rp 50 million in sales, and your ROAS is 5x. It's the most quoted number in performance marketing, and one of the most misunderstood.
The problem is that ROAS measures revenue, not profit. A 3x ROAS can make one business very profitable and slowly drain another. To know whether your ads are really working, you need your break-even ROAS.
Step 1: find your margin
Take the price of an average order and subtract everything it costs you to deliver it: the product itself, packaging, shipping, payment fees and marketplace commissions. What's left, as a share of the price, is your margin.
For example, if your average order is Rp 500,000 and it costs Rp 300,000 to fulfil, you keep Rp 200,000. Your margin is 40%.
Step 2: divide one by your margin
Break-even ROAS = 1 ÷ margin. With a 40% margin, that's 1 ÷ 0.4 = 2.5x. At 2.5x, every rupiah of ad spend pays for itself and nothing more. Below it, you lose money on every sale. Above it, your ads are profitable.
- 60% margin: break-even ROAS of about 1.7x
- 40% margin: break-even ROAS of 2.5x
- 25% margin: break-even ROAS of 4x
- 15% margin: break-even ROAS of about 6.7x
This is why a brand with healthy margins can grow happily at 3x, while a reseller on thin margins may need 6x or more just to break even.
Step 3: account for repeat customers
If customers come back and buy again, the first order doesn't have to carry the whole cost of winning them. A coffee subscription or skincare brand with strong repeat purchases can accept a lower ROAS on the first sale, because the profit arrives over the following months. In that case, track what a customer is worth over three to twelve months alongside ROAS.
Step 4: set a target, not just a floor
Break-even is the floor. Your target ROAS sits above it, with room for the profit you want to make. Push the target too high, though, and growth stalls: the platforms will only show your ads where they're confident of a very high return, and volume dries up. Good optimisation finds the point where you keep growing while staying comfortably above break-even.
What if you sell services?
If you collect leads rather than online sales, the same thinking applies to cost per lead. Work out what a new customer is worth and what share of leads become customers, and you'll know the most you can afford to pay for a lead.
Not sure what your numbers are? Working them out together is one of the first things we do in a free ad audit.