You know what it costs you to make or buy whatever you're selling. You probably have a rough number in your head for how much you're willing to spend on ads this month. What most people don't have is the bridge between those two numbers. That bridge is built from a handful of terms you've probably heard thrown around in meetings: CAC, CPA, ROAS, break even, target margin.

None of it is complicated math. It's the kind of thing that takes five minutes to understand once someone explains it without the jargon. So that's what this post does. Plug your numbers into the calculator above, then read through the plain English breakdown below so you actually understand what those results are telling you.

The two numbers you already have

Every product or service has two numbers attached to it before a single ad ever runs.

The first is what it costs you. If you sell a physical product, that's what you pay to make or source it, plus shipping and any fees that come out of every order. If you sell a service or software, it's whatever it costs you to deliver that one unit, even if that number is small.

The second is what you charge for it. Your price. What the customer actually pays.

Subtract the first from the second and you get your gross profit per order. That's the money left over before you've spent a single dollar on marketing. This one number is the foundation for everything else, because it tells you exactly how much room you have to spend on ads before you start losing money on each sale.

The calculator above does this subtraction for you and then goes a few steps further, turning that gross profit into the numbers marketers actually talk about: break even ROAS, CAC, CPA, and target ROAS. Here's what each of those means.

What these words actually mean, in plain English

COGS (Cost of Goods Sold)
This is what it actually costs you to make or buy one of whatever you're selling. If you sell a candle for $20 and it costs you $6 in wax, wick, jar, and labor to produce it, your COGS is $6. It does not include marketing. It's just the product itself.

AOV (Average Order Value)
This is how much money the average customer hands you per order. If some customers buy one item for $20 and others buy two for $40, your AOV might land somewhere around $28. It's your price, averaged out.

Gross profit and gross margin
Gross profit is what's left after you subtract COGS (and any other per order costs like shipping) from your price. Gross margin is that same number shown as a percentage. If your $20 candle costs $6 to make, your gross profit is $14 and your gross margin is 70%. That 70% is how much of every dollar a customer pays is actually yours to work with.

CAC and CPA (Customer Acquisition Cost / Cost Per Acquisition)
These two terms mean almost the same thing and people use them interchangeably. CAC usually refers to the total cost of winning one new customer. CPA can mean the same thing, or it can refer to the cost of any specific action, like a sale, a signup, or a lead. Either way, the question they're answering is simple: how much am I spending on ads and marketing to get one of these?

ROAS (Return On Ad Spend)
For every $1 you put into ads, how many dollars come back to you in sales? If you spend $100 on ads and those ads generate $400 in sales, your ROAS is 4, often written as 4x. Higher is better, but "better" depends entirely on your margins, which is where the next two terms come in.

Break even ROAS
This is the minimum ROAS where your ads aren't costing you money. Below this number, every sale your ads generate is actually a loss once you account for what the product cost you to make. Above this number, you start keeping some of that revenue as profit. Your break even ROAS is directly tied to your gross margin. The thinner your margin, the higher your break even ROAS needs to be just to stay flat.

Break even CAC / CPA
This is the same idea from the spending side. It's the most you can pay to acquire one customer before that sale stops being profitable. If your gross profit per order is $14, your break even CAC is $14. Spend exactly that on ads to get one sale, and you walk away with $0. Spend less, and you're in the green.

Target ROAS and target CAC / CPA
Break even just means you're not losing money. It doesn't mean you're making any either. Target ROAS and target CAC build in an actual profit goal. If you want to keep 20% of every sale as profit after ad spend, the calculator works backward from that goal to tell you exactly what ROAS you need to hit, and exactly how much you can afford to spend per customer to get there.

A worked example, doing the math together

Let's make this real with simple numbers.

Say you sell a product for $50. It costs you $15 to make or source, and another $5 in shipping and payment processing for every order. That's $20 in total costs per order, which leaves you with a gross profit of $30. Divide that $30 by your $50 price and you get a gross margin of 60%.

From here, the math flows in one direction.

Your break even ROAS is your price divided by your gross profit, which is $50 divided by $30, or about 1.67x. That means as long as every $1 of ad spend brings back at least $1.67 in sales, you're not losing money on the transaction itself.

Your break even CAC is just your gross profit, $30. That's the absolute most you could spend on ads to acquire one customer and still break even.

Now say you don't just want to break even. You want to keep 20% of each sale as profit after ad spend. Twenty percent of $50 is $10, so you need $10 of that $30 gross profit to stay in your pocket. That leaves $20 available to spend on ads per customer, which is your target CAC. Divide your $50 price by that $20 and you get a target ROAS of 2.5x.

So for this product: anything below 1.67x ROAS is losing money, 1.67x to 2.5x is profitable but below your goal, and above 2.5x is hitting your target margin.

If you also have a monthly ad budget, say $5,000, the calculator takes it one step further. At your break even CAC of $30, that budget could theoretically acquire about 166 customers before you stop being profitable. At your target CAC of $20, that same budget gets you about 250 customers while hitting your 20% margin goal. Seeing both numbers side by side makes it a lot easier to set realistic expectations with a media buyer, an agency, or your own campaigns.

What to do with these numbers

Once you know your break even and target numbers, a few things get a lot easier.

You'll know immediately if a campaign is actually working or just generating activity. A campaign that's "performing" at a 1.4x ROAS might feel productive, but if your break even is 1.67x, it's quietly losing you money on every sale.

You can set realistic CPA targets before you launch, instead of guessing and adjusting after the budget is already spent. If your target CAC is $20, that's the number you hand to your media buyer, your agency, or your own campaign settings as the line not to cross.

You can also spot when the math doesn't work at all. If your gross margin is too thin, no amount of optimization will make ads profitable. That's not a marketing problem, it's a pricing or cost problem, and it's much better to find that out with a calculator than after a few months of ad spend.

Common questions

Plug in your real numbers using the calculator at the top of this page, download your PDF report, and you'll have a one page reference for exactly what your ad spend needs to do for your business to make sense.