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Use the right business metric
Break-even focuses on covering costs, gross margin focuses on direct profitability and ROAS focuses on advertising revenue. None of these figures alone is a complete financial forecast.
Which metric answers which question?
| Question | Metric | Formula |
|---|---|---|
| How many units must I sell to stop losing money? | Break-even point | fixed costs / (price − variable cost) |
| How much of each sale is gross profit? | Gross margin | (price − cost) / price |
| How much did I add on top of cost? | Markup | (price − cost) / cost |
| How much revenue did each ad dollar bring? | ROAS | attributed revenue / ad spend |
| What does one customer cost me in ads? | CPA | ad spend / conversions |
Putting them together
A product sells for $50 and costs $30 to make and ship, a 40% gross margin. The break-even ROAS for advertising it is therefore 1 / 0.40 = 2.5 : 1, and the highest CPA that still breaks even is the $20 gross profit per order. If a campaign delivers customers at $15 CPA, each order adds $5 towards fixed costs; at $25 CPA, each order loses $5 before overheads.