What ROAS means
ROAS stands for return on ad spend. It answers one question: for every dollar, pound or euro you put into advertising, how much revenue came back? If a campaign cost $1,000 and the sales it brought in add up to $4,000, the ROAS is 4. The same result is written three ways, and they all mean the same thing:
- 4 or 4x, the plain ratio, common in reports and dashboards;
- 4:1, read as four to one, common in agency and ecommerce talk;
- 400%, the percentage Google Ads uses when you set a target ROAS for its bidding.
ROAS measures revenue, not profit. A ROAS of 4 sounds healthy, but if your products cost you most of their price to make and ship, the ads can still lose money. That is why the calculator asks for your margin: with it, a revenue ratio turns into a yes or no on profit.
The ROAS formula, in plain words
The core formula is short: ROAS = revenue from ads ÷ ad spend. Everything else on this page builds on it. Here are all the formulas the calculator uses, worked through with the numbers behind the Try an example button: $2,500 of ad spend, $11,000 of revenue, 125 orders and a 40% gross margin.
| Metric | In plain words | Example |
|---|---|---|
| ROAS | Revenue from the ads divided by what the ads cost | $11,000 ÷ $2,500 = 4.40 |
| Break-even ROAS | 1 divided by your gross margin | 1 ÷ 0.40 = 2.50 |
| Profit after ads | Revenue times margin, minus ad spend, minus other campaign costs | $11,000 × 40% − $2,500 = $1,900 |
| ROI | Profit after ads divided by everything the campaign cost, as a percentage | $1,900 ÷ $2,500 = 76% |
| Target ROAS | 1 divided by what is left of your margin after the profit you want to keep | 1 ÷ (0.40 − 0.15) = 4.00, or 400% |
| ACOS | Ad spend divided by revenue, as a percentage: ROAS turned upside down | $2,500 ÷ $11,000 = 22.7% |
| CPA | Ad spend divided by the number of orders or leads | $2,500 ÷ 125 = $20 |
| Break-even CPA | Average order value times margin: the most one order can cost in ads | $88 × 40% = $35.20 |
The calculator writes each of these out again with your own numbers, under Formulas with your numbers below the result, so you can check every step or paste it into a report.
Break-even ROAS: the number that tells you if ads pay
Break-even ROAS is the point where the gross profit from the ad sales exactly covers the ad spend. The formula is 1 ÷ gross margin. With a 40% margin, each $1 of sales leaves 40 cents to pay for the ads, so you need $2.50 of sales for each $1 of ads just to break even. Above that line the ads add profit; below it, every extra sale costs you money.
The lower your margin, the higher the ROAS you need, and the climb is steep at the bottom:
| Gross margin | Break-even ROAS | As a percentage |
|---|---|---|
| 10% | 10.00 | 1,000% |
| 20% | 5.00 | 500% |
| 25% | 4.00 | 400% |
| 30% | 3.33 | 333% |
| 40% | 2.50 | 250% |
| 50% | 2.00 | 200% |
| 60% | 1.67 | 167% |
| 75% | 1.33 | 133% |
These are plain arithmetic, not benchmarks. Use your real margin: the price a customer pays minus the cost of the product, packaging, shipping you pay for, payment fees and marketplace commission. If you charge sales tax or VAT, leave it out of both revenue and margin, because it is not yours to keep. If the campaign also has fixed costs, such as an agency fee or a tool, enter them as other costs and the calculator shows a second break-even ROAS that covers them too.
What is a good ROAS?
A good ROAS is one above your break-even point with enough room for the profit you want. There is no figure that is good for every business, because the same ROAS means very different things at different margins. You will often see 4:1 quoted as a rule of thumb. At a 25% margin, 4:1 only breaks even. At a 60% margin, 4:1 leaves 1.40 of profit for every 1 spent on ads.
That is also why we do not show an industry average ROAS here. Averages mix businesses with different margins, prices, attribution settings and goals, so comparing your ROAS with one tells you little. Your break-even ROAS and your target ROAS are the two numbers that matter, and both come from your own margin.
When a low ROAS is fine
- Repeat customers. If a first order brings in a customer who buys three more times, a campaign can lose money on the first sale and still pay. ROAS only sees the first order, unless you feed lifetime value into your conversion values.
- Launches and testing. New products, new audiences and new platforms usually start below target while the campaign learns. Judge them over weeks, not days.
- Brand and awareness. Campaigns meant to make people know you exist are not built to sell on the first click, so ROAS is the wrong yardstick for them.
ROAS vs ROI
The two are often mixed up because both compare money in with money out. ROAS compares revenue with ad spend only. ROI compares profit with everything you put into the campaign. A campaign with $10,000 of sales from $2,500 of ads has a ROAS of 4. If the products cost $6,500 to make and deliver, the profit after ads is $1,000 and the ROI is 40%. If they cost $8,000, the same ROAS of 4 hides a loss of $500.
Use ROAS to compare campaigns, ad groups and platforms with each other, and to set bidding targets. Use ROI, or simply profit after ads, to decide whether advertising is worth doing at all. Without a margin, the calculator still shows a return before product costs, (revenue − ad spend − other costs) ÷ (ad spend + other costs), clearly labelled, because that number says nothing about profit.
Setting a target ROAS in Google Ads and other platforms
Google Ads has a bidding strategy called Target ROAS: you tell it the average return you want and it sets bids to try to reach it across the campaign. Google's help page defines the target as conversion value divided by ad spend, written as a percentage, so a target of 4:1 is entered as 400%. The target is an average, so some conversions come in above it and some below. The calculator gives you the number in both forms.
To choose the target, start from the profit you want to keep. With a 40% margin and 15% of revenue kept as profit, 25% of revenue is left to pay for ads, so the target ROAS is 1 ÷ 0.25 = 4, or 400%. A target set higher than the campaign can reach usually means less volume, because the bidding becomes more selective; set it well above your break-even point, then move it in small steps.
Amazon Ads reports ACOS, advertising cost of sales, instead: ad spend divided by attributed sales, as a percentage. Amazon describes ROAS as the inverse of ACOS, so an ACOS of 25% is a ROAS of 4. Break-even ACOS is simply your margin: at a 40% margin, any ACOS under 40% makes money.
Why your ROAS might not be the whole story
ROAS is only as good as the revenue figure behind it, and that figure is an estimate made by the ad platform. A few things change it:
- Attribution. Each platform credits sales to its own ads, using its own window and rules. When a customer clicks a Google ad and later a Meta ad, both may count the same sale, so adding up the ROAS of each platform overstates the total.
- Returns and cancellations. Platforms count the order when it is placed. If 10% of orders come back, your real revenue is 10% lower than the dashboard says.
- Tax and shipping. If the conversion value includes sales tax, VAT or shipping charged to the customer, ROAS looks better than it is. Check what your store sends as the value.
- Customers who would have bought anyway. Ads on your own brand name often show a very high ROAS because many of those buyers were already looking for you.
For a cleaner view, compare the total revenue of the business with total ad spend over the same period, sometimes called blended ROAS or MER. It is less precise per campaign but cannot double count. To make sure each visit is credited to the right campaign in your analytics, tag every ad link with UTM parameters.
Methodology and limits
- ROAS
- Revenue from the ads ÷ ad spend, shown to two decimals, as a ratio (4.40:1) and as a percentage (440%). Other campaign costs are not part of ROAS, as platforms report it.
- Margin based figures
- Break-even ROAS = 1 ÷ margin. Profit after ads = revenue × margin − ad spend − other costs. ROI = profit after ads ÷ (ad spend + other costs) × 100. With other costs, a second break-even ROAS = (ad spend + other costs) ÷ (ad spend × margin), for the same ad spend. Target ROAS = 1 ÷ (margin − profit kept), and the profit kept must be lower than the margin. "Profit after ads" and the profitable or losing verdict are a contribution under the assumptions you enter, after the costs you select, not net business profit: overheads, returns, tax and costs you leave out are not in it.
- Without a margin
- Only a return before product costs is shown, (revenue − ad spend − other costs) ÷ (ad spend + other costs) × 100, labelled as such, because it is not a profit figure.
- Per conversion
- CPA = ad spend ÷ conversions. Average order value = revenue ÷ conversions. Break-even CPA = average order value × margin. Shown only when you enter conversions. If you enter leads, CPA is a cost per lead and the order value and break-even CPA do not describe orders; do not mix orders and leads in one figure.
- Money
- No exchange rates: the currency only changes the symbol, $2,500.00, £2,500.00 or €2,500.00. In euro mode, a dot followed by exactly three digits is read as a thousands separator, so 2.500 typed the continental way means two thousand five hundred.
- Privacy
- Calculations run in your browser. Your figures are only shared with DEMARCA if you choose to include them in an enquiry and submit the form. Our page statistics record that the calculator was used, never the numbers.
- What it does not do
- It does not connect to Google Ads, Meta or Amazon, check attribution, remove returns or tax, or estimate lifetime value. It shows no industry average ROAS, because we found no average that would be fair to compare with across margins.
Sources
- About Target ROAS bidding, Google Ads Help, for the definition of target ROAS as conversion value ÷ ad spend, written as a percentage
- What is return on ad spend? How to calculate ROAS, Amazon Ads
- What is advertising cost of sales (ACOS)?, Amazon Ads, for ACOS and its relation to ROAS