What is ROAS and how to calculate it? Formula, examples, and pitfalls
ROAS is one of the most frequently used metrics in performance marketing and, at the same time, one of the most frequently misinterpreted. We explain how to calculate it, what makes a good result, and when ROAS can be misleading.
What is ROAS
ROAS (Return on Ad Spend) is the return on advertising expenditure. It shows how much revenue was generated for every dollar (or zloty) spent on a campaign.
The ROAS Formula
ROAS = ad revenue / ad spend
Example: you spend 2,000 PLN on a Meta Ads campaign, and the system attributes 10,000 PLN in sales to it. The ROAS is 5, which is often written as 500%.
What is a good ROAS?
There is no one-size-fits-all number. A good ROAS is one that leaves a profit after deducting product, shipping, and handling costs. The simplest way is to calculate the break-even point:
Break-even ROAS = 1 / profit margin
With a 40% margin, the threshold is 2.5. Any ROAS above this value means a profit on the first order. With a 20% margin, you already need a ROAS of 5.
ROAS vs. ROI
ROI takes all costs into account and shows profit, whereas ROAS only shows revenue in relation to the advertising budget. A campaign with a high ROAS can have a low ROI if you sell low-margin products.
When ROAS is misleading
Attribution. Meta, Google, and GA4 attribute sales according to different rules. The sum of ROAS from all channels is usually higher than actual revenue.
Remarketing. Campaigns aimed at people who would have bought anyway have a great ROAS, but they contribute little incrementality to the business.
New customers. Campaigns that acquire new customers have a lower ROAS, but they build future revenue.
MER, or the bigger picture
That is why, alongside ROAS, we calculate MER (Marketing Efficiency Ratio): total store revenue / total marketing spend. MER does not depend on which channel claimed attribution for a sale, so it better reflects the real impact of your marketing.
How to improve ROAS
Implement Conversions API and improve purchase data quality.
Test new creatives every week, as they have the strongest impact on the cost per sale.
Increase average order value with bundles and free shipping thresholds.
Improve product page conversion rates before scaling your budget.
Summary
ROAS is useful for comparing campaigns, but budget decisions should be based on profit margins, MER, and customer lifetime value. We apply this approach in our performance strategy for our clients. If you want to calculate the target ROAS for your store, contact us.
