ROAS Calculator
Calculate your Return on Ad Spend and Profitability
What is ROAS?
ROAS stands for Return on Ad Spend. It is a critical marketing metric that measures the amount of gross revenue your business earns for every dollar spent on advertising. Unlike ROI (Return on Investment), which accounts for all expenses including overhead and COGS, ROAS focuses specifically on the effectiveness of your advertising campaigns.
The ROAS Formula
ROAS = Total Revenue / Total Ad Spend
For example, if you spend $1,000 on Google Ads and generate $5,000 in revenue, your ROAS is 5.0 (or 500%). This means for every $1 you spent, you earned $5.
Understanding Break-Even ROAS
Knowing your ROAS isn't enough; you must know if you are actually profitable. This depends on your Gross Margin. If your margin is 50%, you need a ROAS of at least 2.0 just to break even on the total costs of the product and the ads.
- Low ROAS (e.g., 1x – 2x): Often indicates a loss unless your margins are extremely high.
- Healthy ROAS (e.g., 4x): Generally considered a standard benchmark for successful e-commerce businesses.
- High ROAS (e.g., 10x+): Indicates highly efficient scaling and excellent creative performance.
Example Calculation
Let's look at a realistic scenario for an e-commerce store:
| Metric | Value |
|---|---|
| Monthly Ad Spend | $2,500 |
| Revenue Generated | $10,000 |
| Gross Margin | 60% |
| ROAS | 4.0x |