Return on Ad Spend (ROAS)
Revenue generated for every unit of currency spent on advertising.
Formula
Variables
Example
$5,000 revenue from $1,000 spend → ROAS = 5:1
How it works
Return on Ad Spend (ROAS) compares the revenue that can be linked to advertising with the amount spent on those ads. It works by taking the money brought in from ad-driven sales and dividing it by the ad cost, so you can see how many dollars of revenue are produced for each dollar spent. A ROAS above 1 means the advertising brought in more revenue than it cost, while a ROAS below 1 means it did not recover its spend.
When to use it
Use ROAS when evaluating the performance of ad campaigns on platforms like Google Ads, Meta Ads, or email promotions. It is especially useful when you want a quick measure of how efficiently advertising spend is turning into sales revenue.
Worked example, step by step
Step 1: Identify revenue from ads = $12,000 Step 2: Identify ad spend = $3,000 Step 3: Apply the formula ROAS = revenue from ads / ad spend Step 4: ROAS = 12,000 / 3,000 = 4 Step 5: Final answer: ROAS = 4:1, meaning every $1 spent on ads generated $4 in revenue
Common mistakes to avoid
- Using total business revenue instead of only revenue attributed to ads
- Confusing ROAS with profit, even though ROAS does not subtract other costs
- Forgetting to use the same currency units for revenue and ad spend
Did You Know?
A ROAS of about 4:1 is a common break-even benchmark for e-commerce.
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