What Is ROAS, and What Is a Good ROAS for Your Business?
Photo: Luke Chesser on Unsplash
In this article
ROAS, or return on ad spend, tells you how much revenue your ads bring in for every dollar you spend on them. The honest answer to what is a good ROAS is that there is no universal number: a good ROAS is one that is higher than your break-even point, and that point depends on your profit margin.
This guide explains the formula, shows you how to work out your own break-even ROAS in two minutes, compares ROAS with ACOS and other ad metrics, and covers the mistakes that make a "great" ROAS lose money.
What is ROAS?
ROAS is the revenue your ads generate divided by the cost of those ads. Google describes target ROAS as the average conversion value you would like to get for each dollar you spend on ads, and Amazon defines it simply as ad revenue divided by ad spend.
The formula is:
ROAS = revenue from ads ÷ ad spend
So if you spend $1,000 on ads and they bring in $4,000 in sales, your ROAS is 4. You will see the same number written in three ways:
| Format | Example | Where you will see it |
|---|---|---|
| Ratio | 4:1 | Agency reports, conversations |
| Multiple | 4× or 4.0 | Meta Ads Manager, dashboards |
| Percentage | 400% | Google Ads target ROAS settings |
All three mean the same thing: $4 back for every $1 spent.
How do you calculate ROAS?
Take the revenue attributed to a campaign over a period and divide it by the spend for the same campaign and the same period.
- Pick the period and the campaign, for example the last 30 days of one Google Ads campaign.
- Find the revenue the ads produced. This comes from your conversion tracking: online purchases, or the value you assign to leads.
- Find the spend for the same campaign and dates.
- Divide revenue by spend.
For example, a campaign that spent $2,500 and brought in $9,000 in sales has a ROAS of 9,000 ÷ 2,500 = 3.6.
What if you sell through leads, not online checkout?
Give each lead a value. If one in five leads becomes a customer and the average customer is worth $1,500, each lead is worth about $300. Most ad platforms let you send that value with each conversion, so ROAS still works for service businesses, B2B companies and anyone who closes sales by phone or chat.
What is a good ROAS?
A good ROAS is any ROAS above your break-even ROAS, the point where ad revenue exactly covers the cost of the product and the ads. Below it, every sale from ads loses money. Above it, ads are profitable.
That is why a 3:1 ROAS can be excellent for one business and a disaster for another. A digital course with high margins can be very profitable at 2:1. A retailer with thin margins might lose money at 4:1.
How to work out your break-even ROAS
Break-even ROAS = 1 ÷ profit margin
Use your margin after the cost of the product, delivery, payment fees and any other cost that comes with each sale, but before ad spend.
| Profit margin before ads | Break-even ROAS | In plain terms |
|---|---|---|
| 80% (software, courses, services) | 1.25 | $1.25 back per $1 covers costs |
| 60% | 1.67 | |
| 50% | 2.0 | |
| 40% | 2.5 | |
| 30% | 3.33 | |
| 20% (many retail products) | 5.0 | You need $5 back per $1 just to break even |
Your target ROAS should sit comfortably above break-even, so there is profit left after ads, overheads and returns. Amazon gives the same advice in reverse: its guide says your ACOS needs to be lower than your profit margin to stay profitable.
Is ROAS the same as ACOS?
No, but they measure the same thing upside down. ACOS (advertising cost of sales), the metric Amazon Ads reports, is ad spend divided by ad revenue, shown as a percentage. ROAS is ad revenue divided by ad spend.
ACOS = 1 ÷ ROAS (as a percentage)
| ROAS | ACOS |
|---|---|
| 2.0 | 50% |
| 3.0 | 33% |
| 4.0 | 25% |
| 5.0 | 20% |
| 10.0 | 10% |
A real example from our own work: Amazon Sponsored Products campaigns for a book publisher produced $526.6K in lifetime US sales on $165.7K of ad spend. That is an ACOS of 31.46%, or a ROAS of about 3.2. The campaigns have kept running since 2017.
How is ROAS different from ROI?
ROAS looks only at ad spend. ROI (return on investment) looks at profit after every cost.
| Metric | Formula | What it tells you |
|---|---|---|
| ROAS | Revenue from ads ÷ ad spend | Is this campaign efficient at turning spend into sales? |
| ROI | (Profit − total cost) ÷ total cost | Is the whole effort making money? |
| ACOS | Ad spend ÷ revenue from ads | ROAS upside down, used on Amazon |
| CPA | Ad spend ÷ number of conversions | What does one lead or sale cost? |
Use ROAS to compare and tune campaigns day to day. Use ROI, or simply profit, to decide whether advertising is worth it for the business as a whole.
What affects ROAS?
ROAS is the result of everything between the ad and the sale, not only the ad itself.
- Targeting and intent. People who are already searching for what you sell usually convert at a higher rate than people scrolling a feed. That is one reason search campaigns and social campaigns often show different ROAS, as covered in Google Ads vs Meta Ads.
- The landing page. A slow or confusing page wastes clicks you already paid for. The most common problems are in 5 signs your website is quietly losing you customers.
- Offer and price. A higher average order value raises ROAS without changing the ads at all.
- Creative. On Meta and TikTok especially, the image or video decides who stops scrolling.
- Tracking. If purchases or leads are not recorded, ROAS looks worse than it is, and the platforms optimise towards the wrong people.
For example, our Google Ads work for a professional training provider reached up to an 11× return on ad spend once we tightened keyword intent and geo-targeting, rebuilt tracking with Google Tag Manager and improved the landing page.
Common ROAS mistakes
- Comparing your ROAS with someone else's. Industry averages hide very different margins, prices and sales cycles. Your break-even number is the only benchmark that matters.
- Chasing the highest possible ROAS. A campaign with a very high ROAS on a tiny budget may be missing most of the sales it could profitably make. Often more total profit comes from a lower ROAS at a larger scale.
- Ignoring repeat purchases. If customers come back, the first order understates what the ad was worth. Consider customer lifetime value for subscription and repeat-purchase businesses.
- Judging too early. Platforms need data to learn. Google's target ROAS bidding, for instance, requires at least 15 conversions in the past 30 days for Search campaigns before it can be used.
- Counting the same sale twice. Each platform claims the sales it touched. Compare platform reports with your actual sales, or with analytics, before celebrating.
How do you improve ROAS?
Work from the sale backwards:
| Step | What to do | Why it helps |
|---|---|---|
| 1 | Check that every purchase and lead is tracked with a value | The platforms can only optimise towards what they can see |
| 2 | Fix the landing page: speed, clarity, one clear call to action | Converts more of the clicks you already pay for |
| 3 | Cut placements, keywords or audiences that never convert | Moves budget to what works |
| 4 | Test new creatives and offers regularly | Fresh ads keep costs from creeping up |
| 5 | Raise average order value with bundles or upsells | More revenue per click |
| 6 | Use value-based bidding (such as target ROAS) once you have enough data | Lets the platform chase high-value customers |
If you would rather have someone else do this, our performance marketing service covers Google, Meta and Amazon ads, and our pricing page shows the packages for your region. Custom quotes and small budgets are welcome.
Frequently asked questions
Is a ROAS of 2 good?
It depends on your margin. A ROAS of 2 means $2 in revenue for every $1 of ads, which is profitable if your margin before ads is above 50%. For a product with a 30% margin, a ROAS of 2 loses money because the break-even point is about 3.3.
What is the difference between ROAS and target ROAS?
ROAS is the result you actually got. Target ROAS is a setting in Google Ads that tells its automated bidding the average return you want, written as a percentage, so a target of 400% asks for $4 in conversion value per $1 spent.
How do I calculate break-even ROAS?
Divide 1 by your profit margin before ad spend. With a 40% margin, break-even ROAS is 1 ÷ 0.4 = 2.5, so any ROAS above 2.5 is profitable before overheads.
Why is my ROAS different in Meta, Google and my store?
Each platform credits itself for sales it influenced, using its own attribution window, so the same order can appear in several reports. Your store or analytics shows actual sales, so use it as the reference and the platform numbers to compare campaigns within each platform.
Can service businesses use ROAS?
Yes. Assign a value to each lead based on how often leads become customers and what a customer is worth, then send that value with each conversion. ROAS then shows which campaigns bring in valuable leads, not just more leads.
The bottom line
ROAS shows how much revenue each ad dollar brings back. Instead of copying someone else's "good ROAS", work out your own break-even point from your margin, set a target above it, and improve it by fixing tracking, landing pages and offers as well as the ads. If you want a second opinion on your numbers, send us your current results and we will tell you where the return is leaking.
