Example margin calculation | Profit Bidding Guide | GROW
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Section 3 · Calculating your true margins

Example margin calculation

Lesson 12 of 26 · 2 min read

Here is the margin stack in action on a single product, from the selling price down to the breakeven ROAS.

Example product

Selling price (including 20% VAT)£60.00
VAT−£10.00
Selling price without VAT£50.00
Purchase price−£20.00
Payment processing fee (1.5% + 20p)−£1.10
Shipping subsidy−£3.00
Handling fee−£1.50
Customer service fee−£0.50
Other fees−£1.00
Profit per sale before advertising£22.90

Now allow for returns

This product has a 5% returns rate. On every returned order you lose the profit on the sale, plus the fees you can’t get back: the payment fee (£1.10), other fees (£1.00) and a restocking fee of £5.50 (£4.00 return shipping and £1.50 handling).

Returns allowance

Profit on the 95% of orders you keep (£22.90 × 95%)£21.76
Fees lost on the 5% returned (£7.60 × 5%)−£0.38
Profit per sale, after returns£21.38

Your breakeven ROAS

£21.38 is the most you can spend on advertising to win this sale without losing money. To turn that into a ROAS, divide the selling price by it.

Max ad cost per sale to break even

£21.38

Breakeven ROAS (£50.00 ÷ £21.38)

2.34

Any ROAS below 2.34 on this product loses money. In the next section we set a profit target and work out the ROAS bid that makes money.

Which selling price? Use the same value your conversion tracking reports to Google. Most tracking reports revenue without VAT, which is what we use here. If yours includes VAT, divide £60.00 instead, which gives a breakeven ROAS of 2.81.

Resources

gROAS calculator gROAS Chrome extension

GROW solution

In our app, agents automatically recalculate your true margins when your costs are updated or when your product price changes. Every product shows its full margin stack, its profit per sale and the ROAS it needs, so you never have to run this calculation by hand.