ROAS
Return on ad spend (ROAS)
Revenue
Return on ad spend: the revenue earned for each dollar spent on advertising.
What is ROAS?
ROAS is often shown as a ratio (4.0) or as a multiple (4x), meaning $4 of revenue for every $1 of ad spend. It can be measured for a whole account, a channel, a campaign or a single ad.
ROAS is about revenue, not profit. A high ROAS on a low-margin product can still lose money. To know whether ads pay off, compare ROAS with your break-even ROAS, the point where gross profit from ad-driven sales just covers the ad cost. For subscriptions, first-order ROAS also misses the renewals that follow, so many brands look at lifetime value as well.
Formula
ROAS = Revenue from ads ÷ Ad spend
Break-even ROAS = 1 ÷ Gross margin
Example
For example, a brand spends $5,000 on ads and tracks $20,000 in sales from them, a ROAS of 4. With a 50% gross margin, its break-even ROAS is 1 ÷ 0.5 = 2, so these ads are profitable.
Why ROAS Matters
ROAS tells you which ads earn their keep, as long as you read it alongside your margins.
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