Your ROAS Should Be Going Down

By Andrej Tumachowitsch - June 2026 - First published in the Ecom Growth Insider newsletter

I get on calls every week with founders who tell me the same thing:

"We tried to scale from $20k to $40k in monthly ad spend and our ROAS dropped from 5x to 3.5x. Something must be broken."

Nothing is broken. That's exactly what's supposed to happen.

When you scale ad spend, you're reaching colder audiences, broader segments, and people who are further from being ready to buy. Of course they convert at a lower rate. You've already captured the warmest, most in-market buyers at your current spend level. Every additional dollar reaches someone slightly harder to convert.

That's expected. That's the basic math of how paid acquisition works at scale.

The real question isn't "how do I maintain 5x ROAS at double the spend?" That's the wrong question. The right question is: "At what ROAS does my business still make money?"

And the answer to that question is almost never the number founders think it is.

The Number You Need vs the Number You Want

I talk to founders almost daily who tell me they need a 5x or 8x or 10x ROAS to be profitable. When I ask where that number came from, the answer is usually some version of: "I estimated it" or "my agency told me" or "it just felt right."

Most of the time, the number is arbitrary. They've never actually calculated what ROAS they need to cover their costs and leave a profit.

Here's how to figure out the real number.

Your business has two types of costs: fixed and variable.

Fixed costs stay roughly the same whether you do 1,000 orders or 1,500 orders this month. Rent, salaries, software, insurance, your Shopify subscription. These costs exist regardless of revenue.

Variable costs change with every order. COGS, fulfillment, payment processing, packaging. The more you sell, the more you spend on these.

Your breakeven ROAS needs to cover both. But here's the insight that changes everything:

Your fixed costs only need to be covered once.

If your fixed overhead is $30k per month and your first $100k in ad spend generates $500k in revenue at 5x ROAS, you've already covered all your fixed costs. Every dollar of ad spend after that $100k only needs to cover variable costs, because the fixed costs are already paid for.

Which means the ROAS required on your incremental spend is dramatically lower.

The Two-Tier ROAS Framework

Here's how this plays out in practice. I'll use a real example from a client.

Tier 1: The first $100k in monthly ad spend.

This tier needs to cover all fixed costs plus variable costs. For this client, that meant a 5x ROAS target. At 5x, the revenue from this tier covers COGS, fulfillment, overhead, salaries, and leaves a contribution margin of roughly 15%.

Tier 2: Every additional dollar beyond $100k.

This tier only needs to cover variable costs, because Tier 1 already handled the fixed overhead. For this client, the breakeven ROAS on incremental spend was closer to 2x. At 2x, each additional dollar of ad spend still generates positive contribution margin, even though the "blended" ROAS across the whole account looks lower.

So when this client scaled from $100k to $200k in monthly ad spend, their blended ROAS dropped from 5x to about 3.5x. Their agency panicked. The client panicked.

But the additional $100k in spend at Tier 2 generated an extra $200k in revenue at 2x, and that revenue had roughly 20% variable margin after COGS, fulfillment, and processing. That's $40k in incremental gross profit that went straight to the bottom line.

The "declining ROAS" was actually the most profitable $100k they'd ever spent.

When Declining ROAS IS a Problem

I want to be clear: this framework doesn't mean every ROAS decline is fine. There are two scenarios where declining ROAS is a genuine warning sign.

Warning 1: ROAS declines but absolute profit stays flat or drops.

If you spend $100k more on ads and revenue goes up but your total net profit at the end of the month is the same (or lower), the scale is unprofitable. You're buying revenue without building profit. The whole point of the two-tier framework is that Tier 2 spend should add incremental profit. If it doesn't, stop scaling and figure out why.

Warning 2: ROAS declines faster than expected.

If Tier 2 should break even at 2x and you're getting 1.3x, something is wrong beyond normal diminishing returns. Common causes: creative fatigue (your top ads are burning out), audience saturation (you've shown ads to everyone reachable at this budget), or landing page mismatch (cold traffic hitting a page that was built for warm visitors).

The framework gives you a way to distinguish between "ROAS dropped because we're reaching colder traffic, and that's fine" versus "ROAS dropped because something is actually broken."

Your Action Step This Week

Calculate your two-tier ROAS thresholds.

Step 1. Add up your monthly fixed costs. Salaries, rent, software, subscriptions, insurance. Everything that stays the same regardless of order volume.

Step 2. Calculate your variable cost per order. COGS plus fulfillment plus payment processing plus packaging. Divide by the number of orders to get a per-order average.

Step 3. Figure out Tier 1: how much ad spend do you need to cover all fixed costs at your current ROAS? That's your Tier 1 threshold.

Step 4. Figure out Tier 2: what ROAS do you need on incremental spend to cover only variable costs and still leave a margin? That's your minimum ROAS for scaling.

For most brands at $1 to $5M, Tier 2 ROAS is 40 to 60% lower than Tier 1. That means you have a LOT more room to scale than you think, as long as you're tracking the right number.

Forget maintaining a high ROAS. The real goal is to end every month with more absolute profit than the month before. If scaling spend at a lower ROAS achieves that, your ROAS is supposed to be going down.