What Is ROAS and How Good Does It Need to Be?
To The Sky ·
ROAS shows the revenue attributed to your ads relative to what you spend on them. A good ROAS lets you cover costs and keep your desired profit, so the right target depends on your business margins.
The ROAS formula: what you actually measure
ROAS stands for Return on Ad Spend: the revenue attributed to advertising relative to your advertising spend. The formula is: ROAS = revenue attributed to ads / advertising spend. For a useful calculation, use the same reporting period and check which revenue the report includes. A platform may show order values without reflecting later returns or cancellations. Also check attribution, the rule used to give an ad interaction credit for a sale. Different platforms can claim the same order. Compare their reports with your store orders before adding reported revenues together.
A good ROAS starts with your margins
There is no universal good ROAS. Start with your contribution margin before advertising: the revenue left after product costs and variable order costs, before paying for ads. Include shipping you cover, packaging, and payment fees. The formula is: contribution break-even ROAS = revenue / contribution margin expressed as a monetary amount. This threshold covers variable costs and advertising, but it does not guarantee that fixed expenses are covered or that you make a profit. Your final target must account for those needs too. If product margins vary, review the advertised categories separately.
ROAS vs profit: what the report leaves out
ROAS measures the relationship between revenue and advertising spend, not the money you keep. You can have an attractive ROAS and weak profit if you sell low-margin products, offer discounts, or absorb frequent returns. Review confirmed revenue, costs, and profit after advertising together. Look at sales volume too: a higher ROAS achieved by cutting the budget can mean fewer orders and lower total profit. Before increasing spend, check whether the additional sales generate enough contribution to cover the additional advertising cost. Base your decision on the money left over, alongside the reported ratio.
Regal Pet: how to interpret a ROAS increase
Regal Pet moved from a ROAS of 8.2x to approximately 13x on Google Ads. This shows an increase in attributed revenue relative to advertising spend, provided measurement is comparable across periods. On its own, it does not reveal the profit retained or whether total sales increased. Use this example as a reason to review campaign efficiency, rather than a target every business must match. Compare periods using consistent reporting rules, check the margins of products sold, and review spend, confirmed orders, and profit together. Then decide whether the result supports more spending or an adjustment to your offer.
In short
Calculate your ROAS threshold from your own costs, then set a target that leaves room for fixed expenses and profit. Increase your budget when confirmed orders and the money left over support that decision.