ROAS Formula: The Complete
Return on Ad Spend Guide
Master the ROAS formula with step-by-step examples, formula variations, and real-world calculations to measure your advertising effectiveness.
The ROAS Formula
or expressed as a percentage: (Revenue ÷ Ad Spend) × 100
The total sales revenue generated by customers who came through your advertising campaigns.
The total amount spent on advertising during the measurement period (platform costs, not including creative or agency fees).
A ratio showing revenue per ad dollar. A 4x ROAS means $4 in revenue for every $1 spent on ads.
Quick Example
You spend $2,000 on Google Ads and generate $8,000 in sales from those ads.
ROAS = $8,000 ÷ $2,000 = 4.0x (or 400%)
This means you earned $4 in revenue for every $1 spent on advertising.
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ROAS Formula Variations
Different ways to calculate and apply ROAS for various business needs
The standard formula. Express as a ratio (4x) or percentage (400%).
The ROAS you need just to cover product costs. Anything above is profit.
If you want 15% profit on ad sales with 35% margin, you need 5x ROAS.
Combines all channels. Useful for high-level budget decisions.
More accurate but harder to measure. Requires holdout testing.
Alternative to ROAS that accounts for COGS. A POAS > 1 is profitable.
Worked Examples
Step-by-step ROAS calculations with real scenarios
Basic ROAS Calculation
You spent $5,000 on Facebook Ads last month and tracked $22,000 in revenue from those campaigns.
- 1 Identify your ad spend: $5,000
- 2 Identify revenue from ads: $22,000
- 3 Apply the formula: ROAS = $22,000 ÷ $5,000
- 4 ROAS = 4.4x (or 440%)
For every $1 spent on Facebook Ads, you generated $4.40 in revenue.
This is a strong ROAS for most ecommerce businesses. However, you need to compare it to your break-even ROAS to confirm profitability.
Break-Even ROAS Calculation
Your average product has a 45% gross profit margin. What ROAS do you need to break even on advertising?
- 1 Identify your profit margin: 45% = 0.45
- 2 Apply the formula: Break-Even ROAS = 1 ÷ 0.45
- 3 Break-Even ROAS = 2.22x
You need at least 2.22x ROAS to cover your product costs.
Since your actual ROAS is 4.4x (from example above) and break-even is 2.22x, you're generating profit. Your 'profit ROAS' is 4.4x - 2.22x = 2.18x above break-even.
Multi-Channel Blended ROAS
You run ads across three platforms. Calculate your blended ROAS.
- 1 Google Ads: $8,000 spend → $36,000 revenue (4.5x)
- 2 Meta Ads: $6,000 spend → $21,000 revenue (3.5x)
- 3 TikTok Ads: $2,000 spend → $5,000 revenue (2.5x)
- 4 Total: $16,000 spend → $62,000 revenue
- 5 Blended ROAS = $62,000 ÷ $16,000 = 3.875x
Your overall advertising efficiency is 3.875x.
While TikTok has lower ROAS, you might still keep it for brand awareness. The key insight is that your strongest channel (Google) deserves more budget allocation.
Target ROAS for Profit Goals
You have a 40% profit margin and want to make 10% profit on every ad-driven sale. What ROAS should you target?
- 1 Profit margin: 40% = 0.40
- 2 Desired profit on ads: 10% = 0.10
- 3 Available for ads: 0.40 - 0.10 = 0.30 (30%)
- 4 Target ROAS = 1 ÷ 0.30 = 3.33x
Target a minimum of 3.33x ROAS to achieve 10% profit on ad sales.
At exactly 3.33x ROAS, 30% of revenue covers ad spend, 30% covers COGS, and 10% is profit. Any ROAS above 3.33x increases your profit margin.
Break-Even ROAS Formula
The most important ROAS calculation for profitability
The break-even ROAS tells you the minimum ROAS you need to cover your product costs. If your ROAS falls below this number, you're losing money on every ad-driven sale.
Break-Even ROAS by Profit Margin
| Profit Margin | Calculation | Break-Even ROAS | Interpretation |
|---|---|---|---|
| 20% | 1 ÷ 0.20 | 5.0x | High ROAS needed—very thin margins for advertising |
| 30% | 1 ÷ 0.30 | 3.33x | Typical for many ecommerce businesses |
| 40% | 1 ÷ 0.40 | 2.5x | Healthy margin—more room for advertising |
| 50% | 1 ÷ 0.50 | 2.0x | Strong margins—can scale advertising aggressively |
| 60% | 1 ÷ 0.60 | 1.67x | High margins—profitable even with modest ROAS |
Important Note
Break-even ROAS only accounts for product costs (COGS). It doesn't include overhead, shipping, payment processing fees, or other operational costs. For true profitability, your target ROAS should be significantly higher than break-even.
Common ROAS Formula Mistakes
Errors that lead to inaccurate calculations and poor decisions
Confusing ROAS with ROI
ROAS measures revenue return, not profit return. A 4x ROAS doesn't mean 300% profit—you still need to subtract COGS and other costs to determine actual profitability.
Always calculate your break-even ROAS based on profit margins. A 4x ROAS with 20% margins barely breaks even.
Using Gross Revenue Instead of Net
Including revenue from orders that were later refunded, cancelled, or discounted inflates your ROAS and gives a false sense of performance.
Use net revenue (after refunds, returns, and discounts) for accurate ROAS calculations.
Ignoring Attribution Windows
A 7-day click attribution and a 28-day click attribution will produce vastly different ROAS numbers for the same campaign.
Standardize on one attribution model when comparing campaigns, and understand how your chosen window affects the numbers.
Comparing Platform ROAS Directly
Meta might report 5x ROAS while Google shows 3x, but they use different attribution methodologies. Direct comparison is misleading.
Use a unified analytics platform or calculate ROAS independently using your own revenue data and consistent attribution.
Not Accounting for New vs Returning Customers
Retargeting campaigns often show high ROAS because they target people who would have purchased anyway.
Segment ROAS by customer type. New customer ROAS is often lower but more valuable for sustainable growth.
Optimizing ROAS at the Expense of Volume
You can achieve 10x ROAS by only targeting your warmest audience, but you'll limit growth. ROAS naturally decreases as you scale.
Balance ROAS targets with volume goals. A 3x ROAS on $100K spend beats a 10x ROAS on $10K spend.
Related Ecommerce Formulas
Other metrics that work alongside ROAS
| Formula | Calculation | Relationship to ROAS |
|---|---|---|
| ROI (Return on Investment) | (Profit - Investment) ÷ Investment × 100 | ROI accounts for all costs; ROAS is revenue-focused and ad-specific |
| CAC (Customer Acquisition Cost) | Total Acquisition Spend ÷ New Customers | CAC tells you cost per customer; ROAS tells you revenue per ad dollar |
| CPA (Cost Per Acquisition) | Ad Spend ÷ Conversions | CPA is cost per action; multiply by AOV to estimate ROAS |
| LTV:CAC Ratio | Customer Lifetime Value ÷ CAC | Measures long-term acquisition efficiency vs ROAS's immediate view |
| MER (Marketing Efficiency Ratio) | Total Revenue ÷ Total Marketing Spend | Blended view including all marketing, not just paid ads |
Need help calculating these metrics?
Ready to Calculate Your ROAS?
Use our free ROAS calculator to instantly compute your return on ad spend, break-even point, and cost per acquisition.
Open ROAS CalculatorFrequently Asked Questions
Common questions about the ROAS formula
The basic ROAS formula is: ROAS = Revenue from Ads ÷ Ad Spend. For example, if you spend $1,000 on ads and generate $4,000 in revenue, your ROAS is 4.0x (or 400%). This means you earned $4 for every $1 spent on advertising.
The standard ROAS formula uses revenue, not profit. This is because ROAS measures advertising efficiency at the top-line level. To account for profitability, calculate your break-even ROAS using your profit margin, or use a separate metric like POAS (Profit on Ad Spend) which substitutes profit for revenue in the formula.
The break-even ROAS formula is: Break-Even ROAS = 1 ÷ Profit Margin (as a decimal). For example, if your profit margin is 40% (0.40), your break-even ROAS is 1 ÷ 0.40 = 2.5x. Any ROAS above 2.5x generates profit; below 2.5x means you're losing money per sale.
ROAS measures revenue efficiency: ROAS = Revenue ÷ Ad Spend. ROI measures profit efficiency: ROI = (Profit - Cost) ÷ Cost × 100. ROAS is specific to advertising and ignores other costs; ROI is broader and accounts for total investment and profitability.
Blended ROAS uses total revenue from all channels divided by total ad spend across all platforms. Channel ROAS calculates each platform separately: Channel ROAS = Revenue from Channel ÷ Ad Spend on Channel. Both are useful: blended shows overall efficiency, while channel ROAS helps optimize budget allocation.
Ad platforms often use different attribution models (7-day click, 1-day view, etc.) and may count conversions differently. Platform ROAS typically credits more sales to ads. Calculate your own ROAS using actual revenue data from your store for a more conservative, accurate picture.
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