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ROAS (Return on Ad Spend)
The revenue generated for every dollar spent on advertising, expressed as a ratio or percentage.
Tags:metricsprofitabilityad performancerevenueoptimization
Return on Ad Spend (ROAS) tells you how much revenue you make for every dollar spent on ads.
The formula: ROAS = Revenue from Ads ÷ Ad Spend
If you spent $1,000 on ads and generated $4,000 in revenue, your ROAS is 4x (or 400%).
What ROAS you need depends on your margins:
- High margins (70%+): 1.5-2x ROAS can be profitable
- Medium margins (40-60%): Need 2.5-3x ROAS minimum
- Low margins (20-30%): Need 4-5x ROAS to break even
ROAS vs ROI:
- ROAS = Revenue ÷ Ad Spend (only considers ad costs)
- ROI = (Profit - Total Costs) ÷ Total Costs (considers ALL costs)
A 3x ROAS sounds great, but if your product costs $50 to make and sell for $100, and you spend $33 on ads to get one sale, you're actually breaking even.
Don't chase ROAS blindly. A campaign with 2x ROAS that brings 1,000 customers is often better than a 10x ROAS campaign that only brings 10 customers. Volume matters.