What is ROAS and how do you calculate it?

What is ROAS?

ROAS (return on ad spend) shows how much revenue you earn for every dollar you spend on advertising. The formula is ROAS = revenue from ads / ad spend. A ROAS of 5 means every $1 of ad spend brought in $5 of sales. The catch: ROAS measures revenue, not profit, so on its own it never tells the whole story.

For ecommerce brands, ROAS is the fastest way to compare campaigns, creatives and channels, and it is the metric Google Ads and Meta use for value-based bidding. Reading it correctly, though, means knowing the assumptions underneath: which revenue was counted, which attribution window was used, and whether returns were taken out.

How do you calculate ROAS?

You need two numbers: total ad spend for a period, and the revenue attributed to those ads in the same period.

1. Pick a date range (for example, the last 30 days).
2. Pull total spend for that range from the ad platform.
3. Pull the attributed conversion value for the same range and the same campaigns.
4. Divide revenue by spend.
5. Express the result as a ratio (4.2) or a percentage (420%). Google Ads asks for target ROAS as a percentage.

A worked example

Example: a skincare brand spends $25,000 on Meta ads in September, and Ads Manager attributes $112,500 in sales to those ads.

ROAS = 112,500 / 25,000 = 4.5

That is $4.50 in revenue per $1 spent. Is that good? You only know once you look at how much of that revenue you actually keep. Say the brand's contribution margin, after product cost, shipping, payment fees and returns, is 30%. Then $33,750 of the $112,500 is contribution, and after subtracting ad spend $8,750 is left. Profitable. With the same ROAS and a 20% margin, contribution would be $22,500 and the campaign would lose $2,500.

Same ROAS, completely different outcome. That is why ROAS on its own is a poor definition of success.

What is the difference between ROAS, ROI and POAS?

These three get mixed up constantly. The table below uses the example campaign above.

Metric	Formula	What it measures	Example value
ROAS	Ad revenue / Ad spend	Revenue generated by ads	112,500 / 25,000 = 4.5
POAS	Gross contribution / Ad spend	Profit generated by ads	33,750 / 25,000 = 1.35
ROI	(Gross contribution - Ad spend) / Ad spend	Net return on the investment	8,750 / 25,000 = 35%

A POAS (profit on ad spend) above 1 means your ads pay for themselves out of profit. If your products have very different margins, POAS is a far better steering metric than ROAS: a high-revenue, low-margin product can inflate ROAS while quietly eating your profit. ROI is usually reserved for period-level or business-level reviews and can be widened to include fixed costs.

What is a good ROAS?

There is no rule like "a good ecommerce ROAS is 4". A good ROAS is derived from your own unit economics, and the starting point is break-even ROAS:

Break-even ROAS = 1 / contribution margin

With a 30% contribution margin, break-even ROAS is 3.33. At 50% it is 2. Any campaign below that line loses money on the first order. Add the profit you want on top and you have your target ROAS.

When you set that target, also ask:

• New or returning customers? If repeat purchase is strong, acquisition campaigns can run slightly below break-even and still be profitable over the customer's lifetime.
• Which funnel stage? Retargeting naturally shows high ROAS because it reaches people who were about to buy anyway. Holding prospecting to the same number will choke growth.
• Which products are selling? A healthy campaign-level average can hide losses on low-margin products.

What are the most common ROAS mistakes?

Ignoring attribution windows

Each platform counts conversions with its own attribution window and model. In Google Ads you set the conversion window per conversion action; in Meta you choose an attribution setting at the ad set level. The same order can be claimed by both. Add up revenue from platform reports and you can easily end up with more than your store actually sold.

Alongside platform ROAS, track blended ROAS (also called MER): total store revenue divided by total ad spend, taken from your ecommerce backend.

Counting revenue with VAT

If your pixel sends order values including VAT, ROAS looks better than it is. If the $112,500 above includes 20% VAT, net revenue is $93,750 and true ROAS is 3.75. Either send conversion values excluding VAT, or set your targets with that in mind.

Not deducting returns and cancellations

In high-return categories like fashion, there can be a big gap between revenue at checkout and revenue you keep. Google Ads lets you retract or restate conversion values for returned orders through conversion adjustments. Skip this step and the bidding algorithm will push more budget toward audiences that generate returns.

Including shipping fees in revenue

Shipping charged to the customer usually goes straight to the carrier. Counting it as conversion value inflates ROAS for no real gain.

How can you improve ROAS?

• Send conversion values excluding VAT and, where possible, adjusted for returns.
• Group products by margin and give high-margin products more aggressive targets.
• Improve product page speed and checkout; more orders from the same traffic lifts ROAS directly.
• Refresh creatives on a regular cadence, since fatigued ads drive costs up.

At Performetic, we always work ROAS targets backwards from a brand's contribution margin and report platform numbers against store data. You can see how that works in practice on our performance marketing service page.

Key takeaways

• ROAS = ad revenue / ad spend. It measures revenue, not profit.
• There is no universal good ROAS; start from break-even ROAS = 1 / contribution margin.
• POAS shows profitability more accurately when product margins vary.
• ROAS calculated with VAT, shipping and returns included will look better than reality.
• Track platform ROAS together with blended ROAS from your store data.