Free marketing calculator
Target ROAS Calculator
Calculate the ROAS your ad campaigns need to achieve your desired profit margin after product costs, shipping, fulfillment, and fees.
Target ROAS Calculator
Enter your order economics and desired profit margin to calculate the ROAS your campaigns need.
Revenue from one average order.
The product cost for one order.
Outbound shipping cost per order.
Pick, pack, warehouse, or handling cost.
Payment fee as a percentage of order value.
Any other per-order variable cost.
Profit you want to keep after ad spend.
Formula summary
Payment Fee = AOV x Payment Processing Fee %.
Variable Cost = product cost + shipping + fulfillment + payment fee + other variable cost.
Maximum CPA = contribution profit - desired profit.
Target ROAS = AOV / maximum CPA.
Guide
Understanding Target ROAS
What is Target ROAS?
Target ROAS is the return on ad spend required to hit a profit goal. It helps marketers avoid setting ad targets based only on revenue by accounting for product costs, shipping, fulfillment, payment fees, and desired profit.
How to Calculate Target ROAS
Calculate the contribution profit before ads, subtract the profit you want to keep, and use the remaining amount as your maximum CPA. Then divide average order value by that maximum CPA.
Target ROAS Formula
Payment Fee = AOV x Payment Processing Fee %
Variable Cost = Product Cost + Shipping + Fulfillment + Payment Fee + Other Variable Cost
Contribution Profit = AOV - Variable Cost
Desired Profit = AOV x Desired Profit Margin %
Maximum CPA = Contribution Profit - Desired Profit
Target ROAS = AOV / Maximum CPA
Example
If average order value is $100 and variable costs total $52, contribution profit before ads is $48. With a desired profit margin of 20%, desired profit is $20, leaving $28 as the maximum CPA. The target ROAS is $100 divided by $28, or 3.57x.
Target ROAS vs Break-Even ROAS
Break-even ROAS shows the minimum ROAS needed to avoid losing money. Target ROAS goes further by protecting a desired profit margin. If you want profitable growth, target ROAS is usually the better number to manage campaigns against.
Why Profit Margin Changes Your Target ROAS
Higher profit margin goals leave less room for ad spend per order. When maximum CPA goes down, target ROAS goes up. That is why the same product can need very different ROAS targets depending on whether the business wants aggressive growth or stronger profit.
Frequently Asked Questions
What does target ROAS mean?
Target ROAS is the return on ad spend your campaigns need to reach a desired profit margin after variable costs and advertising spend.
Why is my target ROAS higher than my break-even ROAS?
Target ROAS includes profit you want to keep. Break-even ROAS only covers costs and ad spend, so it is usually lower.
Should taxes be included as a variable cost?
Include taxes only when they are a real per-order cost to your business. If taxes are collected from customers and passed through, keep them out of AOV and costs.
Can I use this for lead generation?
Yes, but replace average order value with expected revenue per acquired customer and include the variable costs tied to that customer.