Buhata
Login Start for Free

Home › Life Terms

Business and entrepreneur terms

Return on ad spend (ROAS)

The revenue, or other conversion value, that ads bring in divided by what the ads cost, shown as a ratio or a percentage.

What It Means

Return on ad spend (ROAS) divides the value an ad campaign brings in by what the ads cost. Google Ads calls that value the conversion value, such as the revenue from a sale. The result is written as a percentage in Google's help pages, so $5 of sales for every $1 of ads is a ROAS of 500%, which people also say as 5 to 1 or 5x.

Try It: Find Your ROAS and Your Break-Even Point

Example numbers for one month of ads. Change them to your own.

ROAS400%
Break-even ROAS250%
Left after product costs and ads$600

Above break-even: the ads covered their own cost and the cost of what they sold.

The bar's halfway mark is break-even.

How People Say It at Work

  • "That campaign's running at a 4x ROAS."
  • "We set target ROAS at 500% in Google Ads."
  • "Great ROAS, but are we making money?"

The Breakdown

Formula

ROAS = revenue from ads ÷ ad spend × 100%

That matches the formula in Google Ads Help, which divides conversion value by cost. Google's own illustration is a shoe shop that wants $5 of sales for each $1 of advertising, a target ROAS of 500%.

Worked example. A small online shop's month of ads, with example numbers:

LineAmount
Ad spend$1,000
Revenue from ad-driven sales$4,000
ROAS, $4,000 ÷ $1,000400%
Gross margin on those sales40%
Margin earned, $4,000 × 40%$1,600
Left after paying for the ads$600

Break-even ROAS. ROAS counts revenue, while the ads have to be paid for out of margin. Divide 100 by your gross margin percentage to find the ROAS where margin exactly covers ad spend. At a 40% margin, break-even is 100 ÷ 40 = 2.5, a ROAS of 250%. Below that level the campaign loses money even while sales come in.

What moves the number. Higher order valuesPersonal valuesThe principles and qualities a person holds most important, such as honesty, family or creativity, which guide their choices and how they judge events. See more, more of the people who click going on to buy, and cheaper clicks all raise ROAS.

Good to Know

ROAS depends on how conversions are counted and valued, so check what your ad platform records as a conversion and what value it assigns. Google suggests looking at your average conversion value divided by cost over the last 4 weeks before setting a target ROAS for its bidding. ROAS also leaves out every cost besides the ads and the goods, such as shipping, staff and software, which is where return on investmentReturn on investment (ROI)A percentage comparing what an investment earned with what it cost: the gain minus the cost, divided by the cost, times 100. See more comes in.

FAQ

How do you calculate ROAS?

Divide the revenue your ads brought in by what the ads cost, then multiply by 100 for a percentage. $4,000 in sales from $1,000 of ads is a ROAS of 400%, or 4 to 1.

What's the difference between ROAS and ROI?

ROAS compares revenue with ad spend only. ROI subtracts all the costs of an investment from what it returned, so a campaign can show a strong ROAS and still lose money once product and other costs are counted.

What is a good ROAS?

It depends on your margins, so start from your break-even ROAS: 100 divided by your gross margin percentage. A shop with a 40% margin needs at least 250% just to cover the ads, while a business with an 80% margin breaks even at 125%.

Do It in Buhata

Budget in a separate Space

Keep your ad spend and ad-driven sales in Budget in a separate Space in Buhata, so each month's ROAS comes from the same two totals.

Open Buhata

Related Terms and Categories

Business and entrepreneur terms

Sources

Google Ads Help, "About Target ROAS bidding"; Google Ads Help, "About conversion values"

Last updated .