What is ROAS (return on ad spend)?
How is ROAS calculated?
Divide the revenue your ads are credited with by what you spent on them.
The word that matters is "credited". The number depends on who counts and how. A platform, your analytics tool and your shop often give different answers for the same ads. Credit also depends on the attribution window: the time after an ad is seen or clicked in which a purchase is credited to it.
So a ROAS figure needs context. Not "ROAS of 4". Say "Meta-reported ROAS, 7-day click". Otherwise it is a number with no owner.
Why is ROAS not profit?
ROAS counts revenue. It does not subtract the cost of goods, delivery, payment fees or returns. A vendor guide puts the break-even point at 1 divided by margin, and notes that it uses gross margin for this1. We use contribution margin before marketing instead: what is left per order after those variable costs.
Example (illustrative): With a 40 per cent contribution margin, break-even ROAS is 2.5. A ROAS of 2.0 feels fine in the panel. It loses money on every order.
For ZFD: A good ROAS in the panel does not close the question. We ask whether the business kept some of the money. For the other half of that question, read what is a good ROAS for ecommerce.
Worked example
Easily confused with
ROI
ROI is profit based. ROAS is revenue based. They are not the same thing.
iROAS (incremental ROAS)
Counts only the revenue the ads caused, not the revenue they were credited with.
Total revenue over total paid media spend. Often used as another name for MER, so check whether the spend side means all marketing or paid media only.
POAS (profit on ad spend)
Profit from ad-attributed sales divided by ad spend. Sources define "profit" differently, so check which one.
Which number suits which decision is covered in ROAS vs MER vs POAS. One measurement vendor argues that neither ROAS nor MER tells you where the next euro should go, and points to marginal ROAS: the return on the next unit of spend, not the average2. That is a vendor view, but the question is fair.
Buzzword alert
"Our ROAS is excellent, so the ads are working"
Usually means: the platform credited that much revenue to ads, before any check against a control and before margin.
Ask: has anyone checked this against a control group?
"Blended ROAS looks healthy"
Usually means: total revenue over spend, in which organic and returning customers carry part of the number.
Ask: how does it move when we change spend?
FAQ
Is a higher ROAS always better?
No. A high ROAS can come from credit for sales that would have happened anyway. It can also still lose money once costs are paid.
Is ROAS the same as ROI?
No. ROAS divides revenue by ad spend. ROI is based on profit.
Let’s find what’s actually working.
Next step. Check what your ROAS looks like on explicit assumptions. Use the Is your ROAS real? calculator.