What is a good ROAS for a Shopify store
By the AdZoom team · Published
A good ROAS is one above your break-even ROAS, the ROAS at which a campaign's revenue pays for cost of goods, shipping, tax, and the ad spend with nothing left over. Break-even depends on your margins, so no single number is a good ROAS for ecommerce as a whole.
A Shopify store that keeps 50% of its revenue after cost of goods, shipping, and tax breaks even at 2.00. A store that keeps 25% breaks even at 4.00. A ROAS of 3.0 is a profit for the first store and a loss for the second.
This article quotes no industry average. An average is made of other stores' costs, and your costs decide whether your ROAS is good.
What ROAS does your store need to break even?
It needs 1 divided by the share of revenue you keep after cost of goods, shipping, and tax. This article calls that share your margin after costs.
margin after costs = (revenue − cost of goods − shipping − tax) ÷ revenue
break-even ROAS = 1 ÷ margin after costs
The reason fits in one line. If you keep 40 cents of each dollar of revenue, a dollar of ad spend is paid back by $2.50 of revenue, because $2.50 × 0.40 = $1.00. The full derivation is in the article on break-even ROAS, and the break-even ROAS calculator works it out from your own figures.
| Margin after costs | Break-even ROAS | Revenue that pays back $1,000 of ad spend |
|---|---|---|
| 20% | 5.00 | $5,000 |
| 25% | 4.00 | $4,000 |
| 30% | 3.33 | $3,333.33 |
| 40% | 2.50 | $2,500 |
| 50% | 2.00 | $2,000 |
| 60% | 1.67 | $1,666.67 |
| 70% | 1.43 | $1,428.57 |
Find your row. A campaign whose ROAS is above the middle column makes a profit. A campaign below it loses money, however high its ROAS sounds.
The figures are rounded to two decimals. Where the division doesn't come out even, round up when you set a target. At 30% the exact figure is 3.3333 and so on, so 3.34 is above break-even and 3.33 is just below it.
Where your margin after costs comes from
Pick a date range and add up four figures for its orders: revenue, which is what customers paid with tax and shipping charges included, cost of goods, what you paid to ship them, and the tax you collected. Then use the first formula above.
Shopify's gross margin is a different number, so don't read your row from it. Shopify's profit reports calculate gross margin as net sales minus cost, divided by net sales. That formula takes out the product's cost. It doesn't take out what you paid to ship the order.
The same page says profit is reported only for products that had a cost recorded when they were sold. If some of your products have no cost per item, fix that first. The article on recording cost of goods in Shopify covers it.
Why is the same 3.0 ROAS good for one store and bad for another?
Because the two stores keep different shares of the revenue. Two Shopify stores sell leather wallets. The first makes its own. The second resells wallets from other workshops and pays more for every wallet. In one month each spends $1,000 on ads, and each gets a ROAS of 3.0.
| One month | The workshop | The reseller |
|---|---|---|
| ROAS | 3.0 | 3.0 |
| Revenue | $3,000 | $3,000 |
| Cost of goods | −$900 | −$1,650 |
| Shipping | −$450 | −$450 |
| Tax | −$150 | −$150 |
| Left after costs | $1,500 | $750 |
| Ad spend | −$1,000 | −$1,000 |
| Profit | $500 | −$250 |
| Margin after costs | 50% | 25% |
| Break-even ROAS | 2.00 | 4.00 |
The workshop keeps $1,500 of its $3,000, which is 50%, and 1 ÷ 0.50 = 2.00. The reseller keeps $750, which is 25%, and 1 ÷ 0.25 = 4.00.
The ad spend, the ROAS, and the revenue are the same. The workshop made $500 and the reseller lost $250, and the only difference is what the wallets cost.
Any benchmark has this problem. Tell both stores that 3.0 is a good ROAS and you are right once. The workshop could fall to 2.5 and still earn $250. The reseller needs more than 4.00 before a campaign pays for itself.
How good is a ROAS above break-even?
As good as the profit it leaves. At break-even a campaign earns nothing, so the useful measure is how far above break-even it sits. Here is the workshop, with its 50% margin after costs, at six ROAS values on $1,000 of ad spend.
| ROAS | Revenue | Left after costs | Profit per $1,000 of ad spend |
|---|---|---|---|
| 1.5 | $1,500 | $750 | −$250 |
| 2.0 | $2,000 | $1,000 | $0 |
| 2.5 | $2,500 | $1,250 | $250 |
| 3.0 | $3,000 | $1,500 | $500 |
| 4.0 | $4,000 | $2,000 | $1,000 |
| 5.0 | $5,000 | $2,500 | $1,500 |
Each half point of ROAS is worth $250 per $1,000 of ad spend to the workshop, because it keeps half of the extra $500 of revenue. The reseller keeps a quarter, so the same half point is worth $125 to it.
That is why the distance from break-even says more than the ROAS itself. A 3.0 sits one full point above the workshop's 2.00 and one full point below the reseller's 4.00.
AdZoom shows a profit figure beside the ROAS of every Meta and Google Ads campaign, worked out from your Shopify orders, so a campaign under its break-even shows as a loss.
The highest ROAS is not always the most profit
ROAS is a ratio and profit is an amount, and the amount also depends on how much you spend. Take the workshop again, with two campaigns.
| The workshop | Small campaign | Large campaign |
|---|---|---|
| Ad spend | $1,000 | $3,000 |
| ROAS | 4.0 | 3.0 |
| Revenue | $4,000 | $9,000 |
| Left after costs | $2,000 | $4,500 |
| Profit | $1,000 | $1,500 |
The campaign with the lower ROAS earned $500 more. Ranked by ROAS, the small campaign wins. Ranked by profit, the large one does. Once a campaign is above break-even, rank it by the profit it leaves.
What should you check before you judge a ROAS?
Check that the ROAS and the break-even you hold it against are built from the same orders and the same costs.
- The revenue behind the ROAS. Your break-even comes from the costs of your Shopify orders, so hold it against a ROAS calculated from those orders. The ROAS an ad platform reports rests on the platform's own count of revenue, and the two numbers can differ. How to calculate ROAS explains which revenue to use.
- Costs on every order that the table leaves out. Margin after costs covers cost of goods, shipping, and tax. If you pay something else on every order, such as a payment fee, add it to the costs before you divide. Your break-even ROAS goes up.
- Costs that don't depend on orders. Rent, salaries, and software are not in the margin. A campaign exactly at break-even pays for its own orders and its own ads, and adds nothing toward those bills.