Short answer: break-even ROAS is the return on ad spend at which a cash-on-delivery (COD) store neither makes nor loses money. You find it by dividing your selling price by your Max CPA, which is the most you can spend on ads for one booked order after every other cost, including returned parcels, has been paid.
Why the ROAS on your ads dashboard can mislead you
Ad dashboards usually report booked sales, which means orders recorded when the customer placed them. In a COD business, some of those orders are cancelled on the confirmation call, and some parcels are refused at the door and come back. That return is called RTO, which stands for Return To Origin. Only delivered parcels bring in cash, so a dashboard ROAS that looks healthy can hide a loss.
The five steps
- Follow 100 booked orders. Count how many are cancelled, how many are dispatched, how many come back (RTO) and how many are delivered. Calculate your RTO rate on dispatched parcels, not on booked orders.
- Add up the costs. Product cost (landed cost, meaning everything it took to get the item to your warehouse), packaging, the courier charge, the courier charge again for returned parcels, and the COD fee.
- Find the money left before ads. Delivered sales minus those costs.
- Work out Max CPA. Money left before ads divided by the number of booked orders.
- Work out break-even ROAS. Selling price divided by Max CPA.
A worked example (illustrative numbers)
These numbers are invented to show the method. Use your own courier rates and costs.
A seller sells one product for Rs. 2,999. Landed cost is Rs. 1,000, packaging Rs. 80, courier Rs. 250 each way, COD fee 2%. Out of 100 booked orders, 10 are cancelled, 90 are dispatched, 27 come back (30% RTO) and 63 are delivered.
- Delivered sales: 63 x 2,999 = Rs. 188,937
- Product: 63 x 1,000 = Rs. 63,000
- Packaging: 90 x 80 = Rs. 7,200
- Courier: 63 x 250 + 27 x 500 = Rs. 29,250
- COD fee: 2% of 188,937 = Rs. 3,779
- Money left before ads: Rs. 85,708
Max CPA is 85,708 divided by 100 booked orders, about Rs. 857. Break-even ROAS is 2,999 divided by 857, about 3.50. If the ads dashboard shows a ROAS of 3.33, this store is losing money even though the dashboard looks good.
Common mistakes
- Calculating RTO on booked orders instead of dispatched parcels, which makes it look smaller.
- Forgetting that a returned parcel pays the courier on the way out and on the way back.
- Using the supplier's price instead of the full landed cost.
- Trusting the ad platform's order count instead of your own records.
- Looking at profit but not at cash, since courier payments arrive later than ad bills.
Frequently asked questions
What is a good ROAS for a COD store in Pakistan?
There is no universal number. A good ROAS is one that sits comfortably above your own break-even ROAS, and that number depends on your price, costs and RTO rate.
What does RTO mean?
RTO means Return To Origin: a dispatched parcel that comes back to the seller because the customer refused it or it could not be delivered.
What is Max CPA?
Max CPA is the highest amount you can pay for ads per booked order without losing money.
Should I aim to just break even?
Breaking even means standing still. Many sellers aim for a target a margin above break-even, such as 20% higher, but that is a rule of thumb and not a law.
Want the full method? Read the free two-chapter sample on our sample page, or see The Full-Stack E-Commerce Playbook. All figures above are illustrative and not a promise of results.