Solved: What ROAS Multiple Should I Target?

Hi there,

Thanks for reaching out! Happy to give you some initial thoughts on your situation. It's a common question, and honestly, it’s the right question to be asking when you're looking to scale things up. You're already ahead of many new advertisers by even knowing your break-even ROAS, so that's a brilliant start.

The short answer is there's no magic multiple of your break-even ROAS that works for everyone. The advice from people like Hormozi is solid, but it's often aimed at businesses with very different models, like high-ticket services or recurring software subscriptions, where the lifetime value is massive and obvious. For an eCommerce store, the maths is a bit different, but the principle is the same. You just need to uncover the right numbers for your specific business.

Let's unpack this a bit.

We'll need to look at your ROAS question differently...

Right now, you're looking at ROAS as a measure of daily success. A 3.73 ROAS feels good, and it is – you're profitable on a daily basis. But fixating on a high ROAS can actually be a trap that keeps you small. It forces you to only run the safest, most targeted ads to the warmest audiences, which is a very small pool of people. The moment you try to scale your spend, you'll have to reach colder audiences, your ROAS will naturally drop, and if you're only focused on keeping that number high, you'll pull back on the spend. It's a cycle that prevents growth.

The real question isn't "How high can I get my ROAS?" but rather "How high a customer acquisition cost can I afford to acquire a truly great customer?" This shifts your thinking from short-term ad profit to long-term business growth. Answering this question is what will give you the confidence to scale your ad spend to £1k a day and beyond, even if your ROAS drops closer to your break-even point.

To do that, you need to figure out what a customer is actually worth to you over their entire relationship with your store, not just from their first purchase. That's where Customer Lifetime Value, or LTV, comes in. You mentioned you don't know it yet, and that's perfectly normal for a business that's only a few months old. But we can build a solid first estimate with the data you already have.

You'll need to calculate your Customer Lifetime Value (LTV)...

This is the absolute core of the entire scaling puzzle. Once you know your LTV, you know how much you can spend to get a customer, which is the key that unlocks aggressive, intelligent growth. Forget about what ROAS you're 'supposed' to target; let's figure out what your business can actually sustain.

The classic formula looks something like this:

LTV = (Average Revenue Per Customer * Gross Margin %) / Customer Churn Rate

This looks a bit corporate, so let's break it down for your eCommerce store with some real-world thinking and some educated guesses based on your post. We'll have to make some assumptions, but it's a hell of a lot better than flying blind.

1. Average Revenue Per Customer (or ARPA)

For a non-subscription business, this is basically the total amount a customer spends over their lifetime. Since your store is new, we can start by looking at your Average Order Value (AOV). What's the average value of a single transaction? Let's say, for the sake of an example, your AOV is $50.

But you've also mentioned that 4.5% of customers have already repurchased within 3-4 months. That's a great early sign! It tells us that your LTV is definitly higher than your AOV. To get a rough estimate of lifetime revenue, we can do a simple projection. If 4.5% of customers buy again, we can factor that in. A simple way to look at it is to calculate the average number of purchases per customer. For now, it's low, something like 1.045 purchases per customer on average. So your initial ARPA could be estimated as $50 * 1.045 = $52.25. It's a small bump for now, but as you stay in business longer and that repurchase rate climbs, this number will grow and that's where the real profit is.

2. Gross Margin %

You're already on top of this, which is fantastic. You've factored in COGS, payment fees, and shipping costs. Your break-even ROAS of 1.96 tells us what your margin is. If you spend $1 on ads, you need to make $1.96 back to break even. This means the actual profit (the money left over for you, after ads) is what's left after accounting for the cost of the product itself. The relationship is: Gross Margin = 1 / BEROAS. So, your current gross margin is 1 / 1.96 = 0.51, or 51%. This is the percentage of revenue that is actual profit before ad costs.

And you mentioned you can get your BEROAS down to 1.6. If you do that, your margin becomes 1 / 1.6 = 0.625, or 62.5%. That's a huge jump and shows how important optimising your operations is. For our caluclation, let's stick with the current 51%.

3. Customer Churn Rate

This is the trickiest one for an eCommerce store. For a SaaS company, it's simple: the percentage of subscribers who cancel each month. For you, it's the percentage of customers who don't come back to buy again within a certain timeframe. Given your business is only 3-4 months old, we can make a simple, aggressive assumption. Let's define a 'churned' customer as someone who hasn't bought again within a 3-month period. Since 4.5% *have* repurchased, that means 95.5% have not. That's a very high churn rate, but it's realistic for a new store and gives us a conservative, safe number to work with.

Now, let's put it all together in a hypothetical calculation.

So in this example, your LTV (in terms of gross margin) is $26.65. This is the total profit a customer will generate for you on average, before you've paid to acquire them. This number is your new North Star.

I'd say you need to rethink your acquisition cost...

Now that we have a number for LTV, we can finally answer your question about scaling. The goal is to acquire customers for a cost that is significantly less than their lifetime value. This is the LTV to CAC (Customer Acquisition Cost) ratio. A healthy ratio for a growing eCommerce business is typically 3:1. This means for every $3 of lifetime profit a customer brings in, you can spend $1 to acquire them.

With an LTV of $26.65, a 3:1 ratio means you can afford to spend up to $26.65 / 3 = $8.88 to acquire a single customer.

This is your Maximum Allowable CAC.

Suddenly, the game changes. You're no longer chasing a vague ROAS target. You have a hard number. You can now go into your ad account and see what your current CAC is. At $370/day ad spend and a 3.73 ROAS, you're generating $370 * 3.73 = $1,379 in revenue. If your AOV is $50, that's about 27-28 new customers a day. Your CAC is $370 / 27.5 = $13.45. This is higher than our estimated allowable CAC of $8.88. But that's ok, because your current ROAS is much higher than break-even, so you're still profitable. The point of the LTV excercise is to know your absolute upper limit.

So what about your question? "If I can scale to 1k a day and my roas drops to break even is that a good place to be because of LTV?"

If your ROAS drops to your break-even of 1.96, your CAC would be your AOV / 1.96. Using our example AOV of $50, your CAC would be $50 / 1.96 = $25.51. This is far higher than the lifetime value of the customer ($26.65 in gross margin). So in this scenario, you'd be spending $25.51 to make $26.65 in profit over the long term, which is not a sustainable model. You'd be treading water, at best.

You always need your advertising CAC to be below your LTV. The 3:1 ratio gives you a healthy buffer for all your other business overheads and allows you to reinvest in growth. So, your goal should be to scale your spend while keeping your CAC below that $8.88 mark (or whatever your actual number is).

This is the math that allows for aggressive scaling. You're no longer scared of your ROAS dropping from 3.7 to 3.2, as long as your CAC is still healthy. We've had eCommerce clients in the apparel space achieve a 691% return, which is incredible, but the reason they could scale was because they understood these underlying unit economics, not because they just chased a high ROAS number.

You probably should focus on a structured approach to scaling...

Knowing your numbers is one thing; using them to scale effectively is another. Hormozi is right, you should spend as much as you can, but only as much as you can *profitably* spend. This means you need a machine that can take your ad budget and turn it into customers at a predictable CAC. This is where campaign structure becomes vital.

A lot of new advertisers just throw all their audiences into one campaign and hope for the best. A more robust approach, and what we use for our clients, is to structure campaigns based on the sales funnel. For Meta ads (Facebook/Instagram), it looks something like this:

-> Top of Funnel (ToFu) - Prospecting: This is where you're finding new customers. Your ad spend is focused on reaching people who have never heard of you before, using detailed interest and behaviour targeting. This is the coldest traffic and will naturally have the lowest ROAS and highest CAC. This is where you test new creatives constantly to fight the ad fatigue you mentioned.

-> Middle of Funnel (MoFu) - Consideration: This is your retargeting campaign for people who have shown some interest but didn't buy. Think website visitors, people who viewed specific products, or watched a percentage of your video ads. These audiences are warmer, and your ROAS here should be significantly higher. You're reminding them why they were interested in the first place.

-> Bottom of Funnel (BoFu) - Conversion & Retention: This is your hottest audience. You're targeting people who added products to their cart but abandoned it. This is usually your highest ROAS campaign. Crucially, this is also where you should be targeting your *existing customers* to increase that 4.5% repurchase rate. Showing them new products or offering a small discount for their next purchase can dramatically increase your LTV over time. When your LTV goes up, your allowable CAC goes up, which means you can afford to spend more on ToFu ads to get even more new customers. It's a powerful growth loop.

By seperating your campaigns like this, you get a much clearer picture of what's working. You can allocate budget more intelligently, knowing that your prospecting campaigns are for growth (at a higher but still acceptable CAC) and your retargeting campaigns are for profit and LTV boosting (at a much lower CAC).

One final point here: never run campaigns with "Brand Awareness" or "Reach" as the objective. You are paying Facebook to find the people *least* likely to ever buy anything from you because their attention is cheap. Always, always optimise for conversions (Purchases). Awareness is a byproduct of making sales to happy customers, not a prerequisite for it.

You'll need a message they can't ignore...

Scaling ad spend isn't just about targeting and budgets. If your ads are boring, you'll just be spending more money to be ignored by more people. Your ad fatigue issue is a direct signal that your creative needs work. You need to stop selling a product and start selling a solution to a problem.

A powerful framework for this is Problem-Agitate-Solve (PAS).

1. Problem: Hit them with a problem they know they have. State it clearly and directly.

2. Agitate: Pour a little salt in the wound. Describe the frustration and pain that problem causes. Make them feel it.

3. Solve: Introduce your product as the clear, simple solution to that pain.

For example, if you sell high-quality kitchen knives, you don't just say "Sharp knives for sale." You'd say: "Tired of crushing your tomatoes instead of slicing them? (Problem) It's frustrating when you spend time on a beautiful meal, only for prep work to turn it into a mushy mess. (Agitate) Our razor-sharp chef's knife glides through anything, giving you perfect cuts every time. Get the control you deserve. (Solve)"

This kind of messaging speaks directly to the customer's experience. When you find a message that works, you can scale it hard because it resonates with a much wider audience than a simple product-feature ad ever could.

This all might seem like a lot to take in, but you're at a critical point in your business. Getting this framework right now will be the difference between staying at $370/day forever and building a real, scalable brand. I've put the main actionable points into a table for you below.

As you can see, it's not just about flipping a switch and increasing the budget. It's about building a predictable, repeatable system. Implementing all of this correctly requires constant testing, analysis, and optimisation, which is, frankly, a full-time job in itself.

This is the exact strategic work we do for our clients. We help them build this growth engine so they can focus on running their business. If you'd like to go through your ad account and these numbers in more detail, we offer a free, no-obligation 20-minute strategy session where we can give you some more specific advice.

Either way, I hope this detailed breakdown has been helpful and gives you a much clearer path forward. You're on the right track.

Regards,

Team @ Lukas Holschuh