What is ROAS?
Return on ad spend
ROAS is how much revenue you get back for every dollar of ad spend — a ROAS of 4 means $4 back for every $1 spent.
Formula
ROAS = Revenue from ads ÷ Ad spend
ROAS is not profit, and confusing the two is the most expensive mistake in paid advertising. It compares revenue to ad spend only, ignoring the cost of actually making and delivering what you sold. A 4x ROAS is excellent at a 70% margin and loses money at a 20% margin.
The number that makes ROAS meaningful is your break-even ROAS: 1 divided by your gross margin. A business keeping 25% of revenue needs a ROAS above 4.0 simply to avoid losing money. One keeping 80% breaks even at 1.25. Until you know yours, no ROAS figure can tell you whether a campaign is working.
Be wary of chasing a very high target ROAS. Automated bidding will achieve it — by buying only the cheapest, easiest conversions and ignoring the rest of the market, which usually means far less volume than the business needed.