The most you can spend on ads per sale is your profit before advertising. Spend more than that and every ad-driven order loses money. A sensible ad spend per sale is lower, leaving the profit you actually want to keep, and you can express it as a pound amount, a percentage ad rate or a target return on ad spend (ROAS).
Start with profit before ads
Everything begins with one number: how much you make on an order before any advertising.
Profit before ads = selling price − product cost − shipping − marketplace and payment fees − returns allowance − any VAT you owe
If you have not worked this out yet, list every cost per order first, then come back to this step. Leaving out a fee here means overspending on every ad later.
Worked example
Say you sell a hypothetical yoga mat for £20.00. After product cost, shipping, fees and a returns allowance, your costs come to £12.00.
- Profit before ads: £8.00
- That £8.00 is your break-even cost per sale. Spend £8 in ads to get one order and you make nothing.
Decide how much profit you want to keep
Now split that £8 between the advertising budget and your profit. If you want to keep at least £4 per order:
- Maximum ad spend per sale: £4.00
- As an ad rate (ad spend ÷ selling price): £4 ÷ £20 = 20%
That ad rate is the number you can plug into marketplace ad tools that charge a percentage of the sale, such as promoted listings.
Turning it into ROAS
Many ad platforms report ROAS, which is revenue divided by ad spend. You can work out the figures to aim for:
- Break-even ROAS = price ÷ profit before ads = £20 ÷ £8 = 2.5
- Target ROAS = price ÷ your maximum ad spend per sale = £20 ÷ £4 = 5
So if your campaign reports a ROAS of 3, it is above break-even but below your target: you make some money, just less than you planned. If it reports 2, every ad-driven sale loses money.
Bear in mind that ROAS ignores organic sales that would have happened anyway. If ads are mostly reaching people who would have bought regardless, the true return is lower than the report suggests.
Check whether a campaign can hit your number
For ads charged on impressions or clicks, you can test a plan before spending much. You need three figures: cost per thousand impressions (CPM), click-through rate (CTR) and conversion rate.
A hypothetical check
- CPM: £6.00
- CTR: 1% (10 clicks per 1,000 impressions)
- Conversion rate: 2% (1 sale per 50 clicks)
From 1,000 impressions you get 10 clicks and 0.2 sales. Cost per sale = £6.00 ÷ 0.2 = £30.00.
With only £4 to spend per sale, this campaign would need to be more than seven times as efficient to work. You could improve the listing to raise the conversion rate, target better to lift CTR, raise your price, or decide the product is not suitable for paid ads.
Our CPM calculator helps you move between CPM, impressions and total cost when you are planning a budget.
Percentage ad rates on marketplaces
Marketplace ads often work differently from social ads:
- Percentage-of-sale ads (such as eBay's standard promoted listings at the time of writing) charge a rate you choose, usually only when an ad leads to a sale. Your maximum rate is simply profit before ads divided by price, which is 40% in the example above, and your sensible rate is lower.
- Cost-per-click ads (such as sponsored product ads) charge for clicks whether or not they convert, so use the CPM or CPC maths above.
- Creator and affiliate commissions on platforms such as TikTok Shop are effectively an ad rate too, and they come on top of platform fees.
How and when each platform charges can change, so read its current advertising help pages. A dedicated post on eBay promoted listings ad rates goes deeper on that one platform.
A step-by-step routine for setting your ad rate
- Calculate profit before ads for each product and each marketplace.
- Pick the minimum profit you want to keep per order.
- Subtract to find your maximum ad spend per sale.
- Divide by the selling price to get a maximum ad rate.
- Start lower than the maximum, then watch results for a few weeks.
- Track cost per sale, not just clicks. A cheap click that never converts is still wasted money.
- Review monthly, and whenever fees, supplier prices or your selling price change.
When to spend more (and when to stop)
Spending above your usual rate can make sense if you are launching a product and need first reviews, or if repeat purchases mean a customer is worth more than one order. Be honest with yourself, though. Only count repeat sales you can actually see in your data, not ones you hope will happen.
Stop or cut back when cost per sale stays above your maximum after you have improved the listing, images and targeting. Some products simply do not have the margin to support paid advertising.
Frequently asked questions
What is a good ad rate for a new product?
There is no universal figure. Work out your profit before ads, decide how much of it you are willing to spend, and start below that maximum. Adjust once you have real results.
Should I include ad spend in my break-even price?
Yes, if most of your sales come through ads. Treat your ad rate as a percentage cost so your break-even price reflects reality. Our break-even price guide shows how.
Is ROAS or cost per sale better to track?
Cost per sale is easier to compare with your profit per order. ROAS is useful when products have different prices. Tracking both is fine as long as you know your break-even figure for each.
Can someone manage my ads for me?
Yes. If you would rather hand it over, make sure whoever manages your campaigns knows your maximum cost per sale from the start.
To test ad rates against your real margins on eBay, Amazon, TikTok Shop and Etsy, try the free dropshipping profit calculator, or see our advertising management service if you would like campaigns handled for you.
This guide is general information, not legal, tax or financial advice. Fees, rules and thresholds change, so check the official source before you act. Spotted something out of date? Tell us and we will review it.
