What is Return on Ad Spend (ROAS)?

How to calculate ROAS

ROAS = revenue from ads ÷ cost of ads

ROAS vs ROI

ROAS only compares ad revenue with ad costs. Return on investment (ROI) looks at profit after all costs, including the products you sold, staff and fees. A campaign can have a ROAS of 3 and still lose money if your profit margin is low.

What is a good ROAS?

It depends on your margins. Work out your break-even ROAS first: 1 divided by your profit margin. With a 25% margin, you need a ROAS of 4 just to cover the ad costs; anything above that is profit. In Google Ads, you can bid automatically towards a chosen ROAS with the Target ROAS strategy.

Estimate clicks, leads and ROAS from your budget with our free Ads ROI calculator.

ROAS example

A shop spends 20,000 kr on ads and gets 70,000 kr in sales, so ROAS is 3.5. Its gross margin is 40%, so the break-even ROAS is 1 divided by 0.4, or 2.5. At 3.5, the ads earn a profit of 70,000 × 0.4 − 20,000 = 8,000 kr before other costs. If the margin had been 25%, break-even would be 4, and the same campaign would lose money.

How to improve ROAS

Work out your break-even ROAS before setting targets.
Track revenue accurately, including returns and discounts.
Move budget from campaigns below break-even to those above it.
Improve product pages, prices and feeds, since the ad is only part of the result.
Use value-based bidding only when you have enough conversion data.
Look at ROAS by product and audience, not only overall.

ROAS mistakes

Using revenue when profit is what counts.
Setting a high ROAS target that limits volume so much that total profit falls.
Ignoring that remarketing and brand campaigns show high ROAS because the customers were already close to buying.

Return on Ad Spend (ROAS)