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ROAS

ROAS (Return on Ad Spend) is the most important metric for paid advertising. It shows how much revenue you generate for every dollar you invest in ads - and thus determines whether your campaigns are profitable.

What is ROAS?

ROAS is calculated by dividing the revenue from a campaign by the amount you spent on ads. If you spend $10,000 on Google Ads and generate $40,000 in revenue, your ROAS is 4.0 (or 400%).

Formula: ROAS = Revenue / Ad spend

A ROAS of 4 means that you earn $4 for every $1 you invest in advertising.

What is a good ROAS?

It depends on your profit percentage and your fixed costs:

  • ROAS 2-3: Typically the minimum threshold to break even after purchasing and shipping.
  • ROAS 3-5: Solid result for most online shops. Covers purchases, operations and makes a profit.
  • ROAS 5+: Strong performance. Typically seen in brand searches or retargeting.

The right ROAS target for your online shop depends on your gross margin. If your gross margin is 60%, you can tolerate a lower ROAS than if your gross margin is 30%.

ROAS vs. ROI

  • ROAS: Focusing only on the ad spend. ROAS 4 = £4 revenue per £1 ad spend.
  • ROI: Includes all costs (purchasing, shipping, operations, advertising). Shows the real profit.

ROAS is easier to calculate and is used for daily campaign management. ROI is more accurate but requires a full overview of all costs.

ROAS across channels

  • Google Search: Typical ROAS 4-8 for industry-specific search terms. High intent.
  • Google Shopping: Typical ROAS 3-6. Visual format with product images and prices.
  • Facebook/Instagram: Typical ROAS 2-5. Wider reach but lower intent than search.
  • Retargeting: Typical ROAS 5-15. High because you reach people who already know your store.
  • Brand searches: ROAS 10+. Customers searching for your brand name have already made up their minds.

How to improve ROAS

  • Optimize conversion rate: Improvements in checkout, product pages and mobile experience lift ROAS for all campaigns simultaneously.
  • Increase order value: Upselling and bundling increase revenue per conversion without extra ad spend.
  • Sharpen targeting: Narrower audiences can result in fewer clicks but higher conversion rates and ROAS.
  • Reduce waste: Add negative keywords in Google Ads, exclude irrelevant placements in Display and optimize bidding strategies.
  • Use retargeting: Retargeting visitors and basket abandoners almost always yield better ROAS than cold-traffic campaigns.

ROAS limitations

ROAS is an important but incomplete metric:

  • Attribution: ROAS depends on your attribution model. Last-click typically gives higher ROAS to brand and retargeting, while awareness campaigns are undervalued.
  • New vs. existing customers: ROAS does not differentiate between new and returning customers. A low ROAS campaign that primarily drives new customers may be more valuable than a high ROAS campaign that only captures existing customers.
  • CLV: ROAS only measures immediate revenue, not lifetime customer value. A new customer with a high CLV can justify a low initial ROAS.

We know online marketing in Shoporama

We've been working with online marketing ourselves for decades. As the only shop system in the country, we have spoken multiple times at conferences such as Marketingcamp, SEOday, Shopcamp, Digital Marketing, E-commerce Manager, Ecommerce Day, Web Analytics Wednesday and many more.

See the full dictionary