What is ROAS and how do you calculate it?
ROAS (return on ad spend) is the revenue each dollar of ad spend brings back: revenue from ads divided by spend. $12,000 from $3,000 of spend is a ROAS of 4, written 4×, 4:1 or 400%.
Break-even ROAS = 1 ÷ gross margin. At a 25% margin you need a ROAS of 4 just to cover the ads.
ROAS vs ROI
ROAS uses revenue; ROI uses profit. A 4× ROAS on a 20% margin product loses money: $4 of revenue carries $0.80 of gross profit for every $1 spent. Always set ROAS targets above break-even ROAS.
Target ROAS in Google Ads
Google Ads’ Target ROAS bidding takes the target as a percentage: conversion value ÷ ad spend × 100%. A goal of $5 in sales per $1 spent is a 500% target ROAS.
| Metric | Formula | Tells you |
|---|---|---|
| CPM | spend ÷ impressions × 1,000 | what reach costs |
| CPC | spend ÷ clicks | what traffic costs |
| CTR | clicks ÷ impressions × 100 | how compelling the ad is |
| Conversion rate | conversions ÷ clicks × 100 | how well the landing page converts |
| CPA | spend ÷ conversions | what a result costs |
| ROAS | revenue ÷ spend | what each $1 of spend returns |
How to calculate ROAS
- Choose what to calculate. Pick ROAS, revenue from ads or ad spend.
- Enter the other two values. Type the two you know, from your ad platform’s report for the same date range.
- Read the result. The answer updates as you type, using ROAS = revenue from ads ÷ ad spend.
Frequently asked questions
How do you calculate ROAS?
Divide the revenue attributed to ads by the ad spend. $8,000 of revenue from $2,000 of spend is a 4× (400%) ROAS.
What is break-even ROAS?
The ROAS at which ads exactly pay for themselves: 1 ÷ gross margin. At a 40% margin it is 2.5×; anything below that loses money on each sale.
What is a good ROAS?
Any ROAS comfortably above your break-even ROAS. Because margins differ so much between businesses, a ROAS that is excellent for one is a loss for another.
Is ROAS the same as ROI?
No. ROAS is revenue ÷ ad spend. ROI is profit ÷ total investment, so it accounts for product costs and other expenses.