This really is an all important metric that you have to understand before you start running any ads.
Without this metric in place, and in your mind, you are dead in the water and essentially running your ads blind.
I have made a mini series that is up on Youtube so you can either read about it here, watch the videos over there, or preferably both! At time of writing there are 7 video parts up, with more to follow, so please check out the playlist here if you are interested in making $100k in 12 weeks with Shine-On jewelry yourself.
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What do you cover in the 7th video?
The formula involved is not too complicated but your breakeven ROAS will change depending on a few factors.
These include the price you are selling the Shine-On product at, shipping costs for said product, and the countries you are shipping to.
ROAS (return on ad spend) is basically a measurement of how much money you generate for every dollar you spend on Facebook, or any other kind of advertising.
A very basic example would be you spending $10 on ads, and making $20 back. This would give you a ROAS of 2.
But it’s a little more complicated than that.
Out of the $10 profit above you would also need to cover COG (cost of goods) and any other expenses.
It’s not as cut and dry as just spend vs income, especially if you are running a Shopify store.
So what exactly is breakeven ROAS?
Breakeven ROAS is the number you need to keep an eye on when running Facebook ads to maintain that you break even on your adspend.
I cover how to add this column to your ads manager and much more in my post ‘How to set up Facebook Ads’ here.
You will see your ROAS calculated for every campaign, adset and ad that you run in Facebook Ads Manager.
Breakeven ROAS however, is not the number you should be aiming for. You need to be aiming for higher in order to make a profit on your ads!
As the name implies – if you hit breakeven ROAS you are only doing just that – breaking even, or in other words spinning money.
Breakeven ROAS is the bare minimum you need to be hitting with your ads in order to not lose money.
How to calculate breakeven ROAS :
The simple formula is as follows :
Product Price / Net Profit = Breakeven ROAS
However let’s break that down a little more so you know exactly what’s going on.
First we work out net cost, which we get by adding the base cost of the Shine-On product in question to the shipping costs of sending that item out.
Let’s take shipping a loveknot necklace to a customer in the U.S as an example.
We are going to charge $49.95 for this product on our platform page.
Base cost of this Shine-On product is $13.30, and shipping to the U.S is $5.17. So our net cost here would be $18.47
To get our net profit, we subtract net cost from the product price.
Net Profit : $49.95 – $18.47 = $31.48.
Finally, we divide our net profit by the product price to finally get our breakeven ROAS
Breakeven ROAS : $49.95 / $31.48 = 1.59
So, for any ads selling our Shine-On loveknot necklace to customers in the U.S, we need to maintain a ROAS of at least 1.59 in order to make a profit.
If you can hit and maintain a ROAS of say, 2 or higher then this is great – you’re making money, turning a profit and all is well.
Even 1.8 or 1.7 will work. Ok you won’t be making as much money but as always – profit is profit.
If you can get higher than 2 then awesome! You’re rocking and should scale the adset(s) in question in order to make even more money.
Important Notes :
Breakeven ROAS will be different depending on product, variants of the product, shipping costs, and which countries you are shipping to.
I know I’ve said this already but it’s worth mentioning again.
Just because we got 1.59 in that example up there does not mean it’ll be the same for other products.
Before you start running any ads, I strongly recommend you work out your breakeven ROAS for the product(s) in question so you know exactly where you are.
I write mine down on a spreadsheet so I can quickly reference and check what’s what before I start pushing any new products.
I’ll embed the new video here so you can watch right on this page, or if you prefer watching on YouTube just click any of the links on this page.
They’ll open in a new window so you can come back to my blog once you’ve finished watching and move onto part 8 in my print on demand mini series.
I took a bit of time off over Christmas but am committed to a more regular upload schedule on YouTube in 2021.
Please watch this space – more content is coming soon!