ROAS Calculator (Return on Ad Spend)
Calculate your digital marketing performance and profitability instantly.
What is Return on Ad Spend (ROAS)?
ROAS stands for Return on Ad Spend. It is a marketing metric that measures the amount of revenue your business earns for each dollar spent on advertising. Whether you are running campaigns on Google Ads, Meta (Facebook/Instagram), or TikTok, understanding your ROAS is critical for evaluating the effectiveness of your marketing budget.
The ROAS Formula
The mathematical calculation for ROAS is straightforward:
Why ROAS Matters for Your Business
ROAS is a key performance indicator (KPI) because it focuses directly on the conversion value of your advertising. Unlike Click-Through Rate (CTR) or Cost Per Click (CPC), which measure engagement, ROAS measures financial viability.
- Budget Allocation: Identify which campaigns generate the highest returns so you can scale them.
- Profitability Analysis: Determine if your current marketing strategy is sustainable.
- Campaign Optimization: Pinpoint low-performing ads that need creative or targeting adjustments.
Example Calculation
Suppose you spend $2,000 on a Google Ads campaign in a single month. From those specific ads, you track and attribute $10,000 in sales. Using the formula:
- $10,000 / $2,000 = 5
- Your ROAS is 5.0 (or 5:1).
- This means for every $1 you spent, you earned $5 in revenue.
What is a "Good" ROAS?
A "good" ROAS depends entirely on your profit margins, industry, and business stage. However, here is a general benchmark guide:
| ROAS Ratio | Status | Description |
|---|---|---|
| 1:1 or lower | Critical | You are losing money when considering COGS and overhead. |
| 2:1 to 3:1 | Breakeven | Most businesses just cover costs at this level. |
| 4:1 | Healthy | A common target for profitable e-commerce growth. |
| 8:1 or higher | Excellent | Exceptional performance; consider scaling the budget aggressively. |
ROAS vs. ROI: What's the Difference?
While often used interchangeably, they serve different purposes. ROAS measures revenue against ad spend only. ROI (Return on Investment) considers all costs, including product manufacturing, shipping, labor, and software fees. ROAS tells you if your ads are working; ROI tells you if your company is making money.