Retail Marketing Numbers: ROAS, Margin and Shipping Math for One Store

A retailer needs three numbers to know if marketing works: cost, the revenue value it produced, and ROAS. ROAS is revenue value divided by cost. ROAS on its own counts revenue, not profit, so the fourth thing you need is your margin. With those, one line of arithmetic gives you a floor: breakeven ROAS = 1 / gross margin after variable costs. Keep 40% after cost of goods, card fees, packaging and the shipping you pay, and your breakeven ROAS is 1 / 0.40 = 2.5.

The rule behind every page in this section: the first transaction with a new customer should be profitable on its own. Lifetime value is a bonus, not a loan you take out against customers you have not met.

All four calculators work in CAD or USD. Enter amounts before sales tax (GST/HST, PST or US sales tax), and keep one currency throughout.

The four calculators

Breakeven ROAS at margin. Use this first, and again whenever a supplier price, card rate or shipping cost changes. Enter your average order value, gross margin, other variable costs and the profit you want after ads. It returns your breakeven ROAS, the ROAS that hits your profit target, and the most you can pay per order for each. Compare those against the ROAS in your ad account before you raise a budget.

First-transaction profitability. Use this when you are paying to win new customers, for example on a prospecting or Performance Max campaign. Enter first order value, margin, payment fees, packing, unrecovered shipping, the ad cost to win one customer and your repeat rate. It shows profit on the first order after ad cost. If that is negative, it shows how many repeat orders it takes to pay back. If that number is above your real repeat rate, the campaign is borrowing against the future.

Free shipping threshold. Use this before you add, raise or drop a free shipping offer on the web store. Enter monthly orders, average order value, margin, the proposed threshold, the share of orders already above it, and what shipping costs you. It shows the monthly profit change and the share of smaller orders that must top up to break even. Free shipping changes your margin, so recheck your breakeven ROAS after.

Local inventory ads worth it?. Use this before you fund ads that send people to the shop rather than the website. Enter monthly spend, cost per click, the share of clicks that end in a store purchase, in-store order value and margin. Then estimate the share of purchases the ad truly caused. It shows profit after ad spend and the store-purchase rate you need to break even. Be honest with the last input; regulars who would have come anyway are not ad profit.

The guide

Profitable ROAS floor for a store that also sells online walks through the arithmetic line by line. It shows where to find your margin in Shopify’s profit reports and lists the variable costs stores forget. It also explains why web orders and in-store sales from ads need separate floors.