So you're running ads and wondering if they're actually making you money? I've been there. When I first started with Facebook ads back in 2018, I blew through $500 without tracking anything properly. Worst part? I thought I was killing it because I got tons of clicks. Turns out I was just burning cash. That's when I learned how to calculate ROAS the hard way.
ROAS (Return on Ad Spend) is your reality check. It tells you exactly how many dollars you get back for every dollar spent. Not some vague "brand awareness" nonsense – cold hard cash. If you're not calculating this regularly, you're flying blind. Period.
What Exactly is ROAS and Why Bother?
I'll keep this simple because some explanations out there make it sound like rocket science. ROAS measures your advertising efficiency. Let me give you a real example from my e-commerce store last quarter:
Actual campaign numbers:
Ad spend: $2,400
Revenue generated: $9,600
ROAS: 4.0 (meaning $4 return for every $1 spent)
Why does this matter? Because without knowing your ROAS, you might keep pouring money into campaigns that are actually losing you cash. I've seen businesses with $50,000 monthly ad budgets who didn't realize they had a ROAS of 0.8 until we audited their account. Ouch.
Quick Tip: ROAS isn't profit. That $4 return still needs to cover product costs, salaries, and other expenses. But it's your starting point for knowing if your ads are working.
The Basic ROAS Formula Demystified
Here's the simple math even my 14-year-old nephew understands:
ROAS = (Revenue from Ads) ÷ (Ad Spend)
That's it. Seriously. But where people mess up is how they define "revenue from ads." Let me break down the common pitfalls:
Mistake I made: I used to count orders placed but not yet shipped as revenue. Then when cancellations hit, my beautiful ROAS numbers imploded. Now I only count shipped orders with payment captured.
Here's what you should include in your calculations:
- Actual sales revenue (after discounts)
- Shipping fees paid by customers
- Sales tax collected
And here's what shouldn't be included:
- Estimated future value
- Projected lifetime value
- Non-monetary conversions
Real-World Calculation Walkthrough
Let's say you spent $1,200 on Google Ads last month. From those ads:
- 15 orders totaling $3,000
- $180 in shipping revenue
- $210 sales tax collected
Total revenue = $3,000 + $180 + $210 = $3,390
ROAS = $3,390 ÷ $1,200 = 2.83
Meaning you got back $2.83 for every dollar spent. Not bad! But is this profitable? Let's talk about that...
When ROAS Looks Good But You're Still Losing Money
Here's where I got burned early on. My ROAS was 3.5 but I was barely breaking even. Why? Because I forgot about:
| Cost Factor | Impact Example |
|---|---|
| Product cost | Your $100 product costs $45 to make |
| Shipping & handling | Actual shipping cost is $8 but customer paid $6 |
| Payment processing | 3% stripe fees on every transaction |
| Returns & refunds | 12% of orders get returned (industry average) |
Let's run numbers on that "successful" campaign:
Ad spend: $1,200
Revenue: $3,390
ROAS: 2.83
But...
- Product costs: $1,350
- Shipping overages: $36
- Processing fees: $101.70
- Returns (12%): $406.80
Actual profit = $3,390 - $1,200 - $1,350 - $36 - $101.70 - $406.80 = $295.50
See what happened? That "great" ROAS of 2.83 only made $295 profit. That's why smart marketers calculate...
Break-Even ROAS: Your Survival Number
This saved my business during the 2020 supply chain mess. Break-even ROAS tells you the minimum ROAS needed to cover all costs.
Formula:
Break-Even ROAS = 1 ÷ (Profit Margin %)
Example:
Your average profit margin is 30%
Break-Even ROAS = 1 ÷ 0.30 = 3.33
Meaning you need at least $3.33 back per ad dollar spent just to avoid losing money.
Pro Tip: Calculate this monthly. My margins shifted constantly during COVID – what worked in January failed by March.
Advanced ROAS Tracking Tactics
Platforms lie. Okay, maybe not intentionally, but their attribution is often garbage. Here's how I get accurate numbers:
| Tracking Method | Why It Matters | Setup Difficulty |
|---|---|---|
| UTM Parameters | Tracks exact campaign sources | Easy |
| Google Analytics 4 | Cross-device tracking | Medium |
| Server-Side Tracking | Beats ad blockers | Hard |
| CRM Integration | Tracks full customer journey | Medium |
My current setup? UTM parameters feeding into Google Analytics 4, connected to Shopify's conversion tracking. Took a weekend to implement but now I see:
- Email signups from Facebook ads
- Phone calls from Google Ads
- Offline purchases from QR codes
This is crucial because last-click attribution would give all credit to the final Google search, ignoring my Facebook top-of-funnel ads.
Attribution Models Showdown
Your ROAS changes dramatically based on attribution:
| Model | How ROAS Changes | Best For |
|---|---|---|
| Last Click | Overvalues bottom-funnel | Short sales cycles |
| First Click | Overvalues discovery | Brand building |
| Linear | Spreads credit evenly | Content-heavy strategies |
| Time Decay | Values recent touches | Long consideration cycles |
I use position-based attribution (40% first touch, 20% middle touches, 40% last touch). Why? Because in my fitness supplement business, initial awareness and final retargeting both matter.
ROAS Calculation Tools That Don't Suck
After testing 20+ tools, here are my top recommendations:
- Google Sheets: Free and flexible for custom calculations
- Supermetrics: Pulls data from 50+ platforms into sheets
- TripleWhale: E-commerce powerhouse for ROAS tracking
- Northbeam: Amazing for multi-touch attribution
My current workflow? Supermetrics pulls daily ad spend data into Google Sheets where I've built custom ROAS dashboards. Takes 15 minutes daily but saves hours of manual work.
Industry-Specific ROAS Benchmarks
"Is my ROAS good?" Depends entirely on your industry. Here's what I've observed:
| Industry | Average ROAS | Good ROAS | Comments |
|---|---|---|---|
| E-commerce | 2.5 | 4.0+ | High competition but good tracking |
| SaaS | 3.0 | 5.0+ | LTV makes lower ROAS acceptable |
| Travel | 1.8 | 3.0+ | Low margins require volume |
| Real Estate | 1.2 | 2.0+ | High-ticket but long cycles |
Important: These are general benchmarks. Your break-even ROAS matters more than industry averages. I've had e-com clients thriving at 1.8 ROAS because of their insane margins.
Improving Your ROAS Without Spending More
When my ROAS dropped last year, I fixed it without increasing budget. Here's how:
- Kill underperforming ad sets: Cut the bottom 20% every Friday
- Fix landing pages: Improved my conversion rate from 1.8% to 3.4%
- Negotiate ad rates: Got 18% off Google Ads via dedicated rep
- Retarget abandoners: 7x ROAS on cart abandonment campaigns
The biggest win? Optimizing for higher AOV (Average Order Value):
- Added "frequently bought together" prompts
- Created bundled offers
- Set minimum thresholds for free shipping
Result? AOV increased from $89 to $124, boosting ROAS by 28% without extra ad spend.
ROAS vs ROI: The Confusion Cleared Up
People use these interchangeably and it drives me nuts. Here's the difference:
ROAS:
- Focuses only on ad revenue vs ad spend
- Doesn't account for other costs
- Measures advertising efficiency
ROI:
- Considers total profit (revenue minus ALL costs)
- Measures overall business profitability
- Includes product costs, overhead, etc.
Simple analogy: ROAS tells you if your fishing rod is working. ROI tells you if you're making money selling fish.
FAQs: Your ROAS Questions Answered
What's a good ROAS number?
There's no universal "good" ROAS. I've seen businesses thrive at 1.5 and others fail at 5.0. It depends entirely on your profit margins and business model. Calculate your break-even ROAS first.
How often should I calculate ROAS?
For active campaigns, I check daily but only make decisions weekly. Why? Daily fluctuations are normal. Every Monday I review the past 7-14 days to spot real trends.
Why does my ROAS look different on each platform?
Attribution wars. Facebook claims the sale if someone clicked your ad in the past 7 days. Google Analytics might credit organic search. Use a central dashboard instead of platform numbers.
Can ROAS be too high?
Absolutely. If your ROAS is 10+, you're probably leaving money on the table. Test increasing your ad budget gradually – I've scaled profitably from 12 ROAS at $100/day to 6 ROAS at $2,500/day.
How do I calculate ROAS for offline conversions?
This is tricky but doable. We use:
- Unique promo codes for ad campaigns
- Call tracking numbers
- CRM integration with offline sales data
Even then, it's imperfect but better than ignoring offline sales.
The Dark Side of ROAS Obsession
I'll be honest – focusing only on ROAS nearly killed my business in 2021. Why? Because I stopped all brand-building activities that didn't show immediate returns. My remarketing ROAS was amazing while my new customer acquisition dried up.
Today I balance three metrics:
1. Short-term ROAS for performance campaigns
2. New customer acquisition cost
3. Brand lift studies for awareness campaigns
Remember: ROAS is crucial but not the only metric. It's like only looking at your car's speedometer while ignoring the gas gauge and engine temperature. You'll crash eventually.
Putting It All Together
Learning how to calculate ROAS properly transformed my business. From nearly shutting down in 2019 to profitable scaling today, the difference came down to:
- Tracking every dollar accurately
- Understanding my true costs
- Not chasing vanity metrics
The formula is simple:
ROAS = Revenue from Ads ÷ Ad Spend
But the implementation? That's where the art lives. Start with accurate tracking, calculate your true break-even point, and remember that context matters more than raw numbers.
Now if you'll excuse me, I need to go check today's ROAS numbers. Old habits die hard.