"Is a ROAS of 4 good?" is the question founders ask first. It is a fair question and the wrong one. A ROAS of 4 is a great month for one shop and a slow loss for another. This piece gives you a formula instead of a number. It is a spoke of ROAS looks good, profit doesn't, which follows the whole chain from click to bank.
Short answer: what is a good ROAS?
ROAS is the conversion value attributed to ads divided by ad spend. It measures revenue, not profit. So "good" cannot be a fixed number. It has to be measured against what each order costs you.
Your yardstick is break-even ROAS: the lowest ROAS at which ads do not lose money on the orders they bring. Above it, you make money on those orders. Below it, you pay to sell.
There is no universal good ROAS.
Why do published "good ROAS" benchmarks mislead?
Because a benchmark averages shops that are nothing like yours. One vendor guide publishes ROAS bands for a typical shop, calls them patterns rather than anyone's real figures, and names no source for them1. We do not repeat them. A band that ignores your margin cannot tell you whether you make money. Ask any guide where its bands come from.
People ask the question in public, too. In a forum thread on Google ecommerce campaigns, a poster asks whether a ROAS of around 4 is realistic. The replies say it depends on the business2. That is a forum, not evidence. It is, however, the right answer.
For ZFD: we do not quote a "typical" ROAS. If we cannot show where a number comes from, it stays out.
How do you calculate your break-even ROAS?
Divide 1 by your margin. A consultancy's guide calls this an algebraic identity, not a benchmark3.
The catch is which margin. A vendor guide to ROAS uses gross margin, the margin after the cost of goods alone1. A consultancy's article on ROAS versus contribution margin uses contribution margin3. Our view: use contribution margin before marketing. This is our convention, not a market standard. Gross margin leaves out costs every order carries, so in our view it gives a threshold that is too optimistic.
Always write down which margin your number comes from, and whether it is a percentage of revenue.
Example (illustrative): Is a ROAS of 4 good? Say contribution margin is 25% of revenue. Break-even ROAS is 1 ÷ 0.25 = 4.0. For this shop, a ROAS of 4 earns back the ads and nothing more. Above 4, each order leaves money. Below it, each order costs you.
Short on time? The Break-even ROAS & contribution margin calculator does the arithmetic with your inputs.
Why is the same ROAS a win for one shop and a loss for another?
Because margin differs, and break-even moves with it.
Example (illustrative). Two shops each spend €1,000 and are credited with €3,000 of revenue, a ROAS of 3.0.
Shop A Shop B Contribution margin before marketing 50% of revenue 25% of revenue Break-even ROAS (1 ÷ margin) 2.0 4.0 Contribution before marketing €1,500 €750 After €1,000 of ad spend +€500 −€250
Same ROAS. Shop A keeps money. Shop B pays to sell. Margin can differ between product groups inside one shop too. In the Shopify Community thread about a ROAS of 3.8 that still lost money, one reply makes exactly this point: one break-even ROAS should not cover a whole store when product margins differ4.
This is also why a higher ROAS does not always mean a better campaign. It does only if margin, returns and discounts stay the same, and they rarely do. A campaign with a lower ROAS that sells full-price, high-margin products can be the better one.
Platform ROAS or real ROAS: which one are you comparing?
Check this before comparing anything. The number in the ad platform is platform-reported ROAS: the platform's own count of the sales it credits. It is usually not the number in your bank account. Some of those sales would have happened anyway.
Two other measures help here.
- Incremental ROAS (iROAS). Revenue the ads caused, divided by ad spend. It strips out sales that would have come anyway.
- MER (marketing efficiency ratio). Total revenue divided by total marketing spend, without splitting credit between channels. It does not depend on any platform's count.
And one that goes beyond revenue: POAS (profit on ad spend), which divides profit from ad-attributed sales by ad spend. Sources define "profit" differently, so check which one a report uses.
Do not confuse break-even with target ROAS. Target ROAS is a bidding setting: the return you ask the platform to aim for. It is an instruction, not a verdict on whether the campaign is good. Set it with your break-even in mind, not instead of it.
What target should you set, and how often should you review it?
Start from break-even, then decide what you want left over. The same consultancy's guide works out a required ROAS as 1 ÷ (contribution margin minus the margin you want left after ads)3. Note that this is not break-even plus a fixed cushion.
Example (illustrative): Contribution margin is 40% and you want 10% of revenue left after ads. The target is 1 ÷ 0.30, about 3.3, not 2.5 plus something.
Our view on setting it:
- Per product group, if margins differ. One shop-wide target tends to overspend on thin-margin products and underspend on high-margin ones.
- On the right basis. Say whether the target is platform-reported ROAS, iROAS or MER, and compare like with like.
- Reviewed when something moves. Costs, returns rate, prices and discount depth all change break-even. Re-run the formula when any of them does, and put a fixed review date in the diary as a backstop.
If a target feels impossible, that is information. It may mean the margin is too thin for paid ads at current prices. That is a pricing and product question, not a media question. It is part of what our Growth economics & strategy (margin, cash, promotions, inventory) work covers.