ROAS (return on ad spend) is the return you get on your advertising budget: it shows how many pounds of revenue each pound spent on ads has generated. You calculate it by dividing the revenue from a campaign by its cost. If you spend £190 and generate £950 in sales, your ROAS is 5 (sometimes written as 500%).
Why does ROAS matter more than clicks?
Metrics such as CTR or the number of clicks describe how people behave. They say nothing about money. ROAS ties your advertising to your bottom line. In one of our e-commerce campaigns, an ad set with an impressive 3% CTR delivered a ROAS of just 1.8, while a ‘boring’ ad set with a 1.2% CTR achieved a ROAS of 6, because it reached people who were ready to buy. If we had optimised for clicks, we would have cut the most profitable part of the campaign.
What is a good ROAS?
It depends on your margin. Your break-even ROAS is 100% divided by your gross margin: with a 30% margin you only break even at a ROAS of about 3.3, while with a 50% margin a ROAS of 2 is enough. So don’t compare your ROAS with anyone else’s. An electronics shop and a bespoke furniture maker are playing completely different games. When we run Meta Ads campaigns, we agree a target ROAS with each client at the outset, based on exactly these figures: margin and order fulfilment costs.
Watch out for attribution as well: the ROAS in Meta’s dashboard and the ROAS calculated from real orders in your shop are often two different numbers. The dashboard also takes credit for some sales that would have happened anyway.
Related terms: conversion, CPA. For more on choosing an ad platform, read our article Meta Ads vs Google Ads: which should you choose?
