Andrei Visan · Google Ads for eCommerce
eCommerce Google Ads Profitability
Understand contribution, break-even CPA and target ROAS. Connect product economics to acquisition decisions without mistaking attributed revenue for profit.
ROAS measures revenue, not profit
ROAS is attributed revenue divided by advertising spend. It does not tell you what remains after product costs, fulfilment, payment processing, shipping support and returns. Two products can show the same ROAS and leave very different amounts of contribution.
The first decision is therefore not “What ROAS should the account achieve?” It is “What can each order afford to spend on acquisition, under a consistent cost definition?”
Calculate contribution before advertising
Contribution before advertising = revenue − COGS − payment fees − fulfilment − shipping subsidy − expected returns/refund allowance − other variable costs.
Use revenue and costs on the same basis. Exclude sales tax collected on behalf of a tax authority from the revenue available to fund acquisition. If revenue already excludes expected refunds, do not subtract the same refund loss a second time. Include only the incremental return-related cost not already reflected elsewhere.
Turn contribution into decision limits
- Break-even CPA per order equals contribution before advertising. It leaves no contribution for fixed overhead or profit.
- Break-even ROAS equals revenue divided by contribution before advertising, when contribution is positive.
- Target CPA per order equals contribution before advertising minus the desired post-ad contribution.
- Target ROAS equals revenue divided by target CPA, when target CPA is positive.
An order-level CPA allowance is not automatically a customer-acquisition-cost allowance. CAC needs a consistent new-customer definition. Lifetime-value assumptions need repeat-purchase evidence and cash-flow context.
Illustrative example, not client data
An order with €100 revenue and €60 total variable cost has €40 contribution before advertising. Its break-even ROAS is 2.50×. If the business wants €15 contribution after advertising, its target advertising allowance is €25 and the corresponding target ROAS is 4.00×.
These figures demonstrate arithmetic, not a recommended target. They exclude fixed overhead unless the desired contribution is set to cover it. A store with different returns, delivery cost or product mix needs a different calculation.
Do not let the average hide the constraint
Product mix
Group products where different economics would change a budget or bidding decision. A blended margin can conceal low-contribution bestsellers.
Returns and discounts
Use a representative allowance and review it against realised orders. Seasonal discounting and returns can invalidate a historical target.
New versus repeat orders
Evaluate acquisition separately where the data permits. Do not use the same lifetime-value assumption for every purchase.
A useful weekly commercial view
Review spend, orders, attributed revenue, comparable store revenue, product mix and estimated contribution together. Record what is measured, what is estimated and what is missing. When the estimates are too weak to support a scale decision, the next action is better data rather than a more precise-looking dashboard.
Continue the diagnosis
Want this reviewed in your own account? See the €650 eCommerce Diagnostic. For ongoing ownership, explore Google Ads Growth for eCommerce.
About the author
Written by Andrei Visan, a hands-on Google Ads consultant since 2010. The examples here explain a diagnostic method; they are not client performance claims.