When Paid Social Advertising Is Profitable — and When It Is Destroying Your Margin

Why ROAS misleads eCommerce advertisers#

ROAS (Return on Ad Spend) = Revenue attributed to ads / Ad spend. A 4x ROAS means the platform claims you generated £4 of revenue for every £1 spent. Three problems. First, ROAS measures revenue not profit — a 4x ROAS on a 25% margin product means £1 of ad spend generates £4 revenue and £1 gross profit: you have broken even. Second, platform attribution overcredits: Facebook's default 7-day click window means any purchase within 7 days of seeing any Facebook ad is attributed to Facebook — regardless of whether the ad influenced the purchase. Third, ROAS ignores the organic baseline — some percentage of attributed customers would have purchased regardless of the ad.

The minimum viable ROAS for your margin#

The breakeven ROAS is the ROAS at which advertising generates exactly enough gross profit to cover the ad spend. Breakeven ROAS = 1 / Gross Margin %. At 40% gross margin, breakeven ROAS is 2.5x. At 25% gross margin, breakeven ROAS is 4.0x. Above breakeven, advertising generates gross profit. Below breakeven, advertising spend exceeds the gross profit it generates — every sale accelerates your losses. This calculation reveals why the same ROAS number represents a fundamental difference in profitability across different businesses.

MER: the metric that replaces ROAS#

Marketing Efficiency Ratio (MER) = Total Revenue / Total Marketing Spend. Unlike ROAS, MER: cannot be gamed by individual platform attribution models (it uses total business revenue, not platform-claimed revenue), includes organic revenue in the denominator making it harder to inflate, and gives a true blended view of marketing efficiency across all channels. A business spending £50,000 per month on all marketing with £250,000 in total revenue has an MER of 5x. This is more useful than any individual platform ROAS for understanding overall marketing health.

When to scale and when to pause paid social#

Scale paid social when: your new-customer CAC is below your LTV × gross margin product and improving, your MER is stable or improving as you increase spend, your organic baseline is growing (indicating paid social is building genuine brand awareness), and your 90-day LTV of paid-social-acquired customers justifies the CAC. Pause or reduce when: CAC rises to within 20% of your LTV × gross margin product, when MER falls below your breakeven threshold, when you are operating in a cash-constrained period, or when your gross margin has deteriorated to where the economics no longer work.

Using AskBiz to assess paid social profitability#

AskBiz connects to your Google Ads, Meta Ads, and TikTok Ads accounts alongside your Shopify and accounting data to calculate MER, blended new-customer CAC, and LTV by acquisition channel. Ask it: what is my blended MER this month, which ad channel produces new customers with the highest 90-day LTV, has my paid social new-customer CAC changed in the last quarter, am I above or below my breakeven MER at current marketing spend.