What ROAS measures
Return on ad spend (ROAS) tells you how much revenue each unit of advertising brought in. Google Ads, Meta, TikTok and Amazon all report it, sometimes as “conversion value / cost”.
A ROAS of 4 means $4 of sales for every $1 of ads. It is also written 4:1, 4x or 400%.
Why ROAS alone can mislead
Revenue is not profit. Before you see any profit, the sales still have to pay for the products, shipping and payment fees. So the question is not “is my ROAS high?” but “is my ROAS above my break-even ROAS?”
Gross margin here means what is left of the price after product, shipping and payment costs, as a decimal.
| Gross margin | Break-even ROAS | Max ACoS |
|---|---|---|
| 20% | 5.0 | 20% |
| 30% | 3.33 | 30% |
| 40% | 2.5 | 40% |
| 50% | 2.0 | 50% |
| 70% | 1.43 | 70% |
High-margin products such as digital goods or cosmetics can be profitable at a low ROAS. Low-margin products such as electronics need a much higher ROAS.
Worked example 1: is the campaign profitable?
An online shop spends $1,000 on Meta ads in a month. The ads bring in $5,000 of sales from 40 orders. Gross margin is 40%.
- ROAS: $5,000 ÷ $1,000 = 5.0
- Break-even ROAS: 1 ÷ 0.40 = 2.5, so the campaign is profitable
- Profit after products and ads: $5,000 × 0.40 − $1,000 = $1,000
- Cost per acquisition: $1,000 ÷ 40 = $25; average order value $125
Worked example 2: setting a target ROAS
The same shop wants to keep a 15% net margin after ads. Ads can spend the margin that is left, 40% − 15% = 25% of revenue:
1 ÷ 0.25 = 4.0. This is the number to enter as a “target ROAS” bid strategy (often typed as 400%).
Worked example 3: a campaign losing money
A drop-shipping store has a 25% gross margin, spends £2,000 and makes £6,000 in sales. ROAS is 3, which sounds good. But break-even ROAS is 1 ÷ 0.25 = 4. Profit is £6,000 × 0.25 − £2,000 = −£500. The campaign loses money despite a “3x return”.
ROAS, ACoS and ROI
- ACoS (Amazon): ad spend ÷ ad sales × 100. It is 100 ÷ ROAS, so a ROAS of 4 is an ACoS of 25%. Your break-even ACoS equals your gross margin.
- ROI: profit ÷ ad spend × 100. In example 1 that is $1,000 ÷ $1,000 = 100%.
- CPA: ad spend ÷ orders. Compare it with profit per order.
Tips
- Attribution flatters ROAS. Platforms count sales that might have happened anyway, and different platforms can claim the same order. Compare against total sales trends.
- Include all variable costs in margin, including payment and marketplace fees. The Shopify profit calculator and Amazon FBA calculator help here.
- Repeat buyers change the maths. If customers come back, a first-order ROAS below break-even can still pay off over time.
- Not sure of your margin? Use the profit margin calculator first.