Return on ad spend: the revenue an advertising campaign produced divided by what it cost to run. A campaign that spent $2,000 and produced $8,000 in sales has a ROAS of 4, usually written 4× or 400%.
ROAS is the number every ad platform puts in front of you, and the number most business owners are quoted by agencies. It is useful, and on its own it is misleading, because it counts revenue rather than profit.
The figure that makes it meaningful is your gross margin. Divide one by your margin and you have your break-even ROAS — the point below which advertising is costing you money no matter how good the report looks.
| Ad spend | $2,000 | $2,000 |
|---|---|---|
| Revenue | $8,000 | $8,000 |
| ROAS | 4× | 4× |
| Gross margin | 70% | 20% |
| Gross profit | $5,600 | $1,600 |
| Profit after ad spend | $3,600 | −$400 |
Identical ROAS. One business made $3,600; the other lost $400 and would not know it from the platform report.
There is a free calculator on this site for exactly this.
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