What is Return on Ad Spend (ROAS)?
ROAS measures the revenue generated for every dollar spent on advertising. Unlike ROI, which accounts for all business costs, ROAS focuses specifically on advertising efficiency. It is the primary metric for evaluating paid media performance across channels like Google Ads, Meta Ads, and LinkedIn Ads.
The Formula
ROAS = Revenue from Ads ÷ Ad Spend Often expressed as a ratio: "4:1 ROAS" means $4 revenue per $1 spent
ROAS does not account for product costs, overhead, or profit margins. A 4:1 ROAS can still be unprofitable if your margins are below 25%.
Worked Example
An e-commerce company spends $12,000 on Google Shopping ads in a month, generating $52,000 in revenue from those ads.
- Ad Spend = $12,000
- Revenue from Ads = $52,000
- ROAS = $52,000 ÷ $12,000 = 4.33x
- With 40% gross margin: Gross Profit = $52,000 × 0.40 = $20,800
- Net return after ad spend = $20,800 − $12,000 = $8,800 profit
📌 A 4.33x ROAS that generates $8,800 in actual profit after COGS and ad spend. The campaign is profitable and worth scaling.
Why This Matters
Daily campaign management
ROAS is the real-time pulse of your ad campaigns. A sudden drop from 4x to 2x signals creative fatigue, audience saturation, or competitor activity, all requiring immediate action.
Channel comparison
Comparing ROAS across Google, Meta, TikTok, and LinkedIn reveals where your ad dollars work hardest. But ensure attribution models are consistent across channels.
Scaling decisions
A campaign with 6x ROAS has room to scale (increase spend) until ROAS drops to your minimum threshold. Knowing your breakeven ROAS is critical before scaling.
Common Mistakes
❌ Confusing ROAS with ROI
A 3x ROAS means $3 revenue per $1 in ad spend. But if your COGS is $2 per $3 of revenue, your actual profit is only $1 − $1 ad cost = $0. High ROAS doesn't guarantee profitability.
❌ Ignoring attribution model differences
Last-click attribution gives ROAS credit to the final touchpoint. First-click favors awareness channels. Different models can show 2x vs 6x ROAS for the same campaign.
❌ Optimizing for short-term ROAS only
Brand campaigns have low immediate ROAS but build long-term demand. Cutting them to improve short-term ROAS often leads to higher CAC and worse performance 3-6 months later.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| E-commerce | 4x+ | 2-4x | Below 2x |
| B2B SaaS | 5x+ | 3-5x | Below 2x |
| Lead Generation | 10x+ | 5-10x | Below 3x |
Source: WordStream Industry Benchmarks 2025
Benchmark data sourced from WordStream Industry Benchmarks 2025.