The short answer
Revenue left after product cost is not necessarily available for advertising. Carrier charges, packaging, and payment fees can materially change the order’s acquisition allowance. Use one coherent revenue basis and itemize the corresponding costs.
Choose how to record shipping
If customer-paid shipping is included in revenue, include the full merchant-paid shipping expense in costs. Alternatively, a model can exclude shipping collections from revenue and use the net shipping subsidy as a cost. Do not include the collection in revenue and then subtract it from shipping cost again.
Work through a complete order
Illustrative inputs: product revenue $90, customer-paid shipping $5, product cost $40, carrier charge $8, packaging $2, and a hypothetical payment fee of 3% of the $95 collected plus $0.30. These fee terms are an example, not any provider’s quoted price.
Total modeled revenue is $90 + $5 = $95. The payment fee is $95 × 0.03 + $0.30 = $3.15. Non-ad costs total $40 + $8 + $2 + $3.15 = $53.15. Contribution before ads is $95 − $53.15 = $41.85. On this revenue basis, break-even ROAS is $95 ÷ $41.85 ≈ 2.27×.
Keep the numerator aligned
If your advertising report excludes the $5 shipping collection, its ROAS numerator is $90. The same $41.85 ad allowance corresponds to $90 ÷ $41.85 ≈ 2.15× in that report. The economics did not improve; the revenue definition changed. Compare a measured ratio with a threshold using the same numerator.
Include the less obvious charges
Check fulfillment handling, pick-and-pack fees, marketplace commissions, and nonrefundable charges on returned orders where they apply. If fees are assessed on a different base, such as tax-inclusive collections, calculate them on that actual base. Avoid presenting a generic percentage as your real fee schedule.
Use the calculator with a consistent scope
Enter the modeled revenue amount and individual costs, including additional variable expenses in “Other cost.” Keep a note if your revenue includes shipping. For a varied order mix, calculate total contribution across representative orders rather than choosing the cheapest shipment. Revisit the inputs when shipping zones, basket sizes, or payment methods change.
Reconcile shipping once
- Gather: Separate shipping collected, carrier charges, packaging and the actual payment fee base.
- Produce: Use either gross collections with full costs or a documented net-subsidy approach.
Decision boundary: Do not count shipping collections in revenue and subtract them from cost as well.
Next reading
Examples are illustrative, not client results or benchmarks. The calculations use the inputs shown; real-world decisions depend on your records and assumptions. Report a correction.