What is ROAS?
ROAS is the revenue your advertising produced divided by what you spent to produce it, written as a multiple such as 4.5 for every unit of spend.
Formula
ROAS = revenue from ads ÷ ad spend
Worked example, not a result
Reading a ROAS figure next to margin
Say a store spends 4,000 on shopping ads in a month and the ad account is credited with 18,000 in revenue. ROAS is 18,000 divided by 4,000, which is 4.5. The account is reporting four and a half units of top line revenue for every unit of spend.
Now put margin next to it. If those orders carry a 38 percent contribution margin after product cost, shipping and payment fees, the 18,000 in revenue leaves 6,840. Take the 4,000 of ad spend out of that and 2,840 is left to cover overheads and profit. The same 4.5 would leave nothing at all if the contribution margin were closer to a fifth.
Every figure here is a made-up example to show the arithmetic. It is not a result, a benchmark, or a number to expect from your own account.
Why it matters
ROAS is the fastest read on whether paid traffic is worth buying, so it sits on top of the visitors lever. It tells you whether you can afford more of the traffic you already buy, and the point at which buying more stops paying for itself.
It is also a shared scoreboard for the other three levers. Anything that lifts conversion rate, average order value or repeat purchases raises the revenue side of the ratio without raising spend, so a clearer product page or a working post purchase email shows up later as a higher ROAS on campaigns nobody touched. That is why we treat ROAS as a symptom to read rather than a dial to turn.
For a store owner the decision it drives is short. If ROAS sits comfortably above the point where an order pays for itself, the answer is usually more budget. If it sits below, the answer is rarely a bid change. It is a feed, page or offer problem showing up in the ad account.
Common mistakes
- Reading platform reported ROAS as if it were profit. Revenue is not margin, and an account can report a healthy multiple while every order loses money once product cost, shipping, fees and returns come out.
- Comparing ROAS across campaigns that have different jobs. A campaign selling to people who already visited will report a higher multiple than one finding first time buyers, and cutting the second to protect the average slowly shrinks the store.
- Raising ROAS by cutting spend. Pausing everything except the safest search terms and warmest audiences lifts the ratio and lowers total profit at the same time.
- Adding up the ROAS each platform reports. Every ad platform counts conversions it had a hand in, so the totals overlap and the sum claims more revenue than the store actually took.
Related terms and answers
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