How margin, markup and break-even ROAS connect
Profit = price − total cost. From there, margin = profit ÷ price and markup = profit ÷ cost. The number that matters most for advertisers is hidden inside margin: break-even ROAS = 1 ÷ margin. It's the exact return a paid campaign must clear before it makes a cent.
Why this matters for paid ads
Two stores with identical ad results can have opposite outcomes if their margins differ. A 60% margin gives a ~1.7× break-even ROAS — lots of room to scale. A 25% margin needs 4× just to break even. Pair this with the ROAS calculator to see whether a campaign is actually profitable.
Costs to include
- COGS — what you pay for the product itself.
- Shipping & fulfilment — to you and to the customer.
- Payment & platform fees — typically 2-3%+ per order.
- Returns & discounts — average them in for a realistic margin.
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Frequently asked questions
How do you calculate profit margin?
Profit margin = (selling price − total cost) ÷ selling price × 100. If you sell for $50 and your costs are $20, your profit is $30 and your margin is 60%. Margin is always expressed as a percentage of revenue, which makes it comparable across products at different price points.
What's the difference between margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of cost. A product that costs $20 and sells for $50 has a 60% margin but a 150% markup. They describe the same dollar profit from different angles — confusing them is one of the most common pricing mistakes.
What is break-even ROAS and how is it related?
Break-even ROAS is the return on ad spend you need just to cover costs, and it equals 1 ÷ your profit margin. At a 30% margin, your break-even ROAS is about 3.3×. This calculator computes it automatically so you know the exact ROAS line a paid campaign must beat to be profitable.
What is a healthy ecommerce profit margin?
Net margins of 10-20% are typical for ecommerce, while gross margins (before ad spend and overhead) often need to be 50%+ to leave room for paid acquisition. The higher your gross margin, the more aggressively you can spend on ads, because your break-even ROAS is lower.