What Is ROAS? Formula, Calculator & How to Improve It
ROAS is the most cited metric in ecommerce advertising. Here's the formula, how to calculate it, and why it might not be the metric you should optimise for.
Jakob Sperber
Director
Google Ads
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ROAS is the most talked-about metric in ecommerce advertising. It's also the most dangerous one to optimise for in isolation. This guide covers the formula, how to calculate it properly, what "good" looks like, and why the smartest operators are moving beyond it.
What Does ROAS Stand For?
Return on Ad Spend. It measures how much revenue you generate for every dollar spent on advertising. Revenue divided by ad spend. Nothing more.
The critical word: revenue — not profit. A 5x ROAS on a 15% margin product is very different from 5x on a 70% margin product.
The ROAS Formula
ROAS = Revenue from Ads / Ad Spend
$2,000 on Google Ads, $10,000 in revenue = 5x. $5,000 on Meta, $12,500 in revenue = 2.5x.
Platform-Reported vs Actual ROAS
Every platform inflates its own ROAS. Each takes credit using its own attribution model. Add up all platform-claimed revenue and it exceeds your actual revenue by 30–60%.
Blended ROAS = Total Shopify Revenue / Total Ad Spend. This is the honest number. Use MER at the business level for the full picture.
Break-Even ROAS Calculator
Break-Even ROAS = 1 / CM1%
CM1 is your Contribution Margin 1. Example: $80 AOV, $34.40 variable costs. CM1% = 57%. Break-even = 1.75x.
70% CM1: break-even = 1.43x
50% CM1: break-even = 2.0x
30% CM1: break-even = 3.33x
Calculate your own before looking at any benchmark.
What Is a Good ROAS?
Depends entirely on your margins. Channel benchmarks for AU ecommerce:
Google Search (non-brand): 3–8x
Google Shopping: 3–6x
Performance Max: 2–5x
Meta TOF: 1.5–4x
Meta Retargeting: 5–15x
TikTok: 1–3x
Deeper breakdown in our guide on ROAS benchmarks by industry and channel.
Why ROAS Is Misleading
ROAS treats all revenue as equal. A $100 order at 70% margin and a $100 order at 20% margin look identical. But one contributed $70 and the other $20.
Google's algorithm, optimising for revenue-based ROAS, pushes spend toward high-AOV low-margin products. Your ROAS looks great. Your profit is worse.
ROAS vs POAS
POAS = Gross Profit / Ad Spend. Measures profit return, not revenue return. Solves the product mix problem entirely.
Product A: $50 revenue, 65% margin. ROAS 2.5x, POAS 1.63x. Product B: $120 revenue, 22% margin. ROAS 6x, POAS 1.32x. ROAS says B wins. POAS correctly identifies A as more profitable.
Full comparison in our ROAS vs POAS deep dive.
How to Improve ROAS
1. Better Creative
Higher CTR lowers CPC and attracts better-qualified traffic.
2. Landing Page CRO
20% conversion rate improvement = 20% ROAS improvement. Focus on speed, message match, trust signals, mobile.
3. Increase AOV
Bundles, free shipping thresholds, upsells. More revenue per click = higher ROAS mechanically.
4. Tighter Targeting
Audit search terms, add negatives, exclude past purchasers from prospecting.
5. Bid Strategy
Set tROAS from your break-even calculation. Consider value-based bidding.
6. Fix the Offer
If conversion rate is low across all sources, the market is telling you something.
When ROAS Doesn't Matter
If you're CM3-positive on the first order, ROAS is secondary. The real question: how much volume can you push while staying profitable? That's a budget question driven by your P&L.
The Framework
Know your unit economics. Calculate CM1, CM2, CM3.
Calculate break-even ROAS. 1 / CM1%. This is your floor.
Set targets from profit goals, not benchmarks.
Move toward POAS. Start here.
Track MER at the business level.
ROAS will always have a place in your reporting. Just don't let it have the only seat at the table.
