What is Return on Ad Spend?
TL;DR
Revenue generated for every dollar spent on advertising. ROAS = Revenue ÷ Ad Spend. If you spend $1,000 on ads and generate $5,000 in sales, your ROAS is 5:1 (or 500%). Target ROAS varies by industry and margins. Unlike ROI, ROAS focuses specifically on advertising efficiency.
On this page
Frequently Asked Questions About Return on Ad Spend
What's a good ROAS?
It depends on your profit margins. A 50% margin business might need 2:1 ROAS to break even. A 20% margin business needs 5:1. E-commerce often targets 4:1 or higher. Calculate your break-even ROAS based on your specific margins.
How is ROAS different from ROI?
ROAS measures ad revenue vs. ad spend only. ROI considers all costs (product, overhead, labor). A 4:1 ROAS looks good, but after product costs and overhead, you might have negative ROI. ROAS is simpler; ROI is more complete.
How do I track ROAS accurately?
Implement proper conversion tracking with revenue values. Connect Google Ads to your e-commerce platform or CRM. Attribution matters, first-click, last-click, and multi-touch show different ROAS. Understand which model you're using.
Why is my ROAS declining?
Common causes: increased competition, ad fatigue (same ads to same audiences), seasonal changes, targeting creep (too broad), or landing page issues. Review each component systematically to identify the culprit.
Should I use Target ROAS bidding?
Target ROAS bidding can optimize automatically once you have sufficient data (Google recommends 50+ conversions in 30 days). Start manual, establish baselines, then test automated strategies. It won't work magic with bad campaigns.
Terms Related to Return on Ad Spend
Cost Per Acquisition
The total cost to acquire one customer or lead through advertising. CPA = Total Ad Spend ÷ Number of Conversions. CPA is...
Read definition PPCPay Per Click
An advertising model where you pay each time someone clicks your ad, Google Ads, Facebook Ads, Microsoft Ads. PPC provid...
Read definition MetricsROI
Return on Investment, a measure of how much profit you make relative to what you spend. ROI = (Revenue - Cost) ÷ Cost ×...
Read definition PPCAd Rank
The calculation determining where your ad appears in Google Ads results. Ad Rank = Bid × Quality Score × Expected Impact...
Read definition PPCCost Per Click
The actual amount you pay when someone clicks your ad. CPC varies dramatically by industry, legal keywords can cost $50+...
Read definition PPCGoogle Ads
Google's advertising platform (formerly AdWords) for Pay Per Click ads in search results, display networks, YouTube, and...
Read definitionPPC Articles
View All Posts »
SEO vs PPC – How to Choose the Right Strategy for Your Small Business Marketing
Should you invest in SEO or PPC for your small business? This comprehensive guide breaks down both strategies, their costs, benefits, and when to use each.