Ads Math: A simplified approach to understanding the full impact of your seasonal ads

Measuring advertising success isn’t always straightforward. With so many metrics available, it can be tempting to focus only on what’s immediately visible—like cost per click (CPC) or click-through rate (CTR)—without fully capturing how ads drive value across the entire customer journey. This guide offers a practical, easy-to-use toolkit to help advertisers see a more complete view of their advertising impact.

Ads Math is a chapter in the Ads Strategy Guidebook for holiday marketing 2025. View the entire guidebook here.

ROAS alone is a preliminary metric. It should be considered in the context of your profit margin. A high ROAS may still mean you're losing money if your margin is too low. To answer questions like “is this good or bad?”, preliminary metrics should be interpreted in context and paired with deeper performance indicators—such as conversions, customer lifetime value (LTV), profit, or incremental lift.

ROAS alone doesn’t tell you if you're profitable. Here’s why:

Advertiser A has a higher ROAS, but because their margin is small, they still lose money.
Advertiser B has a lower ROAS, but a better margin—so they make money.

To see the full picture, let’s calculate break-even ROAS.

The formula for ROAS is:

Revenue attributed ÷ Ad spend = ROAS

For example, if you made $50,000 in ad revenue and spent $5,000 on ads:

$50,000 ÷ $5,000 = 10

Start by calculating your gross profit margin:

(Revenue – Cost of goods sold) ÷ Revenue = Gross profit margin

For example, if your ad revenue is $50,000 and your cost goods sold is $30,000, your gross profit margin is 0.40, or 40%.

Then, calculate break-even ROAS with this formula:

1 ÷ Gross profit margin = Break-even ROAS

Tip: Use the gross profit margin in decimal form to calculate easily. For example, use 0.4 instead of 40%.

With a 0.40 gross profit margin divided by 1, your break-even ROAS is 2.5.

A break-even ROAS of 2.5 means you need $2.50 in attributed sales for every $1.00 spent on ads to break even.

• If campaign ROAS greater than or equal to break-even ROAS, then the campaign is profitable (or at least not losing money).
• If campaign ROAS less than break-even ROAS, then the campaign is unprofitable.

It’s not about how high your ROAS is—it’s about whether your ROAS is higher than your break-even ROAS. Once you know your break-even ROAS, you can instantly see whether your ad campaigns are helping your business grow or quietly draining your profit.

Higher spend can still mean higher profit if your ROAS stays above your break-even point. Don't avoid bidding up out of fear; make a data-driven decision.

Example scenario:

• CPC is projected to increase by 25%.
• ROAS is expected to drop from 3.2 to 2.8.
• Your break-even ROAS is 2.0.

Verdict: The campaign is still profitable because a ROAS of 2.8 is greater than 2.0 (break-even point). Therefore, you can afford to bid up.

Refer to the previous section, Understanding ROAS profitability, to find the formulas to calculate your projected campaign ROAS and break-even ROAS.

Step 2: Compare

• If the projected campaign ROAS is greater than or equal to the break-even ROAS, then the campaign is profitable. You may afford to bid up.
• If the projected campaign ROAS is less than the break-even ROAS, then the campaign is unprofitable. You should reconsider your campaign strategy.

Go in with a plan, not fear. Test and scale where the math supports it.

A high CPC is fine if your conversion rate and average order value (AOV) are high enough to support it. It’s the full path from click to conversion that determines profitability, not just the cost of the click itself.

Note: This calculator is meant to determine if your CPC is too high in relation to CPA for one-off purchases and does not take into account customers who continue to purchase from your brand. If you expect customers to buy multiple times, refer to Determining your customer acquisition budget.

• CPC ($)
• Conversion rate (%)
• Average order value ($)
• Gross profit margin (%)

1. CPA ($)
• CPC ÷ Conversion rate = CPA
2. Profit per sale ($)
• Average order value × Gross profit margin = Profit per sale
3. Net profit or loss per sale ($)
• Profit – CPA = Net profit or loss per sale

If the net profit or loss per sale result is positive, then the campaign is profitable. If it's negative, then the campaign is unprofitable, and you either need to lower your CPC or increase your conversion rate.

Knowing your LTV allows you to see the full picture of the returns on your ad investments. It helps you avoid common pitfalls like bidding too low on valuable audiences or scaling back campaigns that are profitable in the long run, even if their initial return seems low.

To calculate customer LTV, you will need your average order value ($) and average orders per customer. The formula is:

Average order value × Average orders = Customer LTV

Now that you have your customer LTV, you can calculate your affordable CPA. You will need your overall profit margin as well to calculate. The formula is:

LTV × Profit margin = Affordable CPA

Once you've identified your affordable CPA, you can use it as the upper limit for your ad spend per new customer to ensure you break even over their lifetime. Understanding this metric can help you invest more confidently in advertising, as it accurately reflects the long-term returns of your ad spend.