What Is Return on Ad Spend (ROAS)?
ROAS measures revenue generated per pound spent on advertising. The essential metric for evaluating paid marketing.
Key Takeaways
- ROAS = Revenue from Ads ÷ Ad Spend.
- A ROAS of 4 means you generate £4 for every £1 spent on advertising.
- Break-even ROAS depends on your gross margin — not a fixed number for all businesses.
The formula
ROAS is revenue generated from advertising divided by the cost of that advertising. If you spend £5,000 on Google Ads and generate £20,000 in attributed revenue, your ROAS is 4 (or 400%). This is a ratio, not a percentage — a ROAS of 4 means £4 back for every £1 in.
What ROAS doesn't tell you
ROAS does not tell you whether you're profitable. A ROAS of 4 sounds great — but if your gross margin is 30%, you're making £0.20 of gross profit for every £1 of ad spend before overheads. The break-even ROAS is 1 divided by gross margin ratio. At 40% gross margin, break-even ROAS is 2.5. Know your break-even before setting targets.
ROAS by channel
ROAS varies significantly by channel. Google Shopping typically produces higher ROAS than display. Retargeting campaigns typically produce higher ROAS than prospecting. Meta ads typically produce lower ROAS but reach customers who wouldn't have found you otherwise. Compare ROAS by campaign type, not just overall.
Target ROAS
Most ad platforms allow you to set a target ROAS and will automatically optimise bids to achieve it. Set your target based on your margin — not on what you think sounds good. If your break-even ROAS is 2.5, target 3.5–4 to leave room for unattributed returns and overhead contribution.