This is where most businesses get stuck. They see revenue climbing and assume the ads are working. But revenue isn't profit. And a healthy looking ROAS number means nothing if you don't understand what's behind it.
ROAS, Return on Ad Spend, is the metric that tells you exactly how much revenue you generate for every dollar you put into advertising. Simple concept. Surprisingly easy to get wrong.
Let's break it down properly, how to calculate it, what a good number actually looks like for your business, and why the standard "aim for 4x" advice people throw around is often misleading.
What Is ROAS and How Do You Calculate It?
ROAS is straightforward math. Take the revenue your ads generated. Divide it by how much you spent on those ads. That's your number.
ROAS = Total Revenue From Ads / Total Ad Spend
If you spent $1,000 on Google Ads and those ads drove $4,000 in sales, your ROAS is 4.0, or 4x. For every dollar you spent, you brought back four.
You'll see this expressed different ways. 4x, 4:1, or 400% all mean the same thing. The platform you're using will probably show you one of these automatically, but knowing how to calculate it yourself matters because platform numbers aren't always accurate, and you'll understand why in a moment.
A quick example to make this concrete: A clothing brand runs Instagram ads for a weekend sale. Total ad spend across the weekend is $2,500. Total sales directly attributed to those ads come in at $11,000. Their ROAS is 4.4x. Sounds great. But is it actually profitable? That depends entirely on their margins, which brings us to the part most people skip.
Why "4x ROAS" Isn't Always Good Enough
Here's where the conversation gets real. A 4x ROAS might make your business wildly profitable or quietly bankrupt you, depending on your margins.
Think about it this way. You sell a product for $50. It costs you $40 to make, ship, and handle the transaction. Your profit per item is $10, which is a 20% margin. Your break-even ROAS, the point where you make exactly zero profit after ad costs, is actually 5x. That means a 4x ROAS is losing you money on every single sale, despite looking impressive on paper.
The formula for break-even ROAS is simple:
Break-Even ROAS = 1 / Profit Margin
Here's how this plays out across different business types:
A digital product or SaaS with an 80% margin breaks even at just 1.25x ROAS. They can run ads almost carelessly and still make money.
A high-end fashion brand with 50% margins breaks even at 2x. Reasonable efficiency gets them profitable.
A general ecommerce store with 30% margins needs 3.33x just to stop losing money on ads.
A dropshipping business with 15% margins needs 6.67x ROAS before they see a single cent of profit from their ad spend.
This is why chasing a generic "good ROAS" number without knowing your own margins is dangerous. Calculate your break-even ROAS first. Everything else follows from there.
ROAS vs ROI: They're Not the Same Thing
This trips up more people than you'd expect. ROAS and ROI sound similar but measure very different things, and confusing them leads to bad decisions.
ROAS only looks at ad spend versus the revenue those ads generated. It's a close-up view of how your advertising is performing. ROI looks at the bigger picture, total profit versus all costs involved in running your business, including products, salaries, tools, shipping, rent, everything.
A business can have a fantastic ROAS and still lose money overall. Imagine spending $10,000 on ads that generate $50,000 in revenue. That's a 5x ROAS. Looks great. But if your total margin on those sales is only 15%, you're actually losing money on the whole operation once you factor in everything else.
Use ROAS to optimize your ads day to day. Use ROI to decide whether your business model actually works. Both matter. Neither alone tells the full story.
Where Ads Show Up and What ROAS to Expect
Not all platforms deliver the same returns, and they're not supposed to. Each platform serves a different role in how customers find and buy from you.
Google Ads captures people who are already searching for what you sell. Someone typing "best running shoes for flat feet" is telling you exactly what they want. This intent-driven traffic converts well. Google Search ROAS typically lands around 4.5x, with Shopping ads running slightly higher around 5.2x.
Meta, meaning Facebook and Instagram, works differently. People aren't searching for your product. They're scrolling, and your ad interrupts them. This discovery-based traffic generally converts at lower rates. Meta ROAS typically sits around 2.5x to 3.5x, though retargeting warm audiences pushes that number up considerably.
Amazon Ads actually delivers the highest median ROAS in the industry, around 8x, but that's because people on Amazon are already there to buy something. The intent is about as high as it gets.
TikTok sits around 1.4x median ROAS, which sounds low but is doing something different. It's building awareness and reaching audiences you'd never find through search. That awareness eventually converts elsewhere, which is why looking at any single platform in isolation is misleading.
The right question isn't which platform has the best ROAS. It's which platforms are driving actual profit for your specific business, and that requires looking at the full picture.
Why Your Platform ROAS Might Be Lying to You
Every ad platform wants to take credit for every sale. Google will claim conversions that Meta also claims. Both might be claiming sales that would have happened anyway without any ad involvement.
This is an attribution problem, and it's getting worse as privacy changes limit tracking across devices and browsers. Meta's default attribution window is 7 days click and 1 day view, meaning if someone clicks your ad on Monday and buys on the following Monday, Meta counts it. Google might count it too.
The result is that your platform-reported ROAS is almost always higher than reality. This is why "blended ROAS" matters. Take your total store revenue and divide it by your total ad spend across all platforms. It's less precise for individual campaign decisions but gives you a more honest picture of whether advertising is actually working for your business overall.
How to Actually Improve Your ROAS
Once you know your numbers, improving them comes down to pulling levers in the right places.
Creative quality is the biggest lever by far. Better ads get more clicks, which lowers your cost per click, which improves ROAS without changing your budget or targeting. A genuinely compelling ad creative can improve returns by 2x to 3x compared to a mediocre one. This is where most businesses should focus first.
Your landing page matters as much as your ad. Someone clicks your ad, arrives at a slow, confusing, or poorly designed page, and leaves. You paid for that click. You got nothing for it. The experience after the click is where most ROAS improvements actually hide. Page speed, mobile layout, clear calls to action, easy checkout, all of these directly impact whether clicks become sales.
Know your audience segments. Retargeting people who already visited your site or bought from you will almost always deliver higher ROAS than targeting cold audiences who've never heard of you. Both matter for growth, but they perform very differently and should be measured separately.
Cut what's not working, fast. Most campaigns have a handful of ad sets or keywords eating budget without delivering sales. Regular review and ruthless cutting of underperformers improves ROAS across the board.
Raise your average order value. Many of your costs are per order, not per dollar spent. If you can get customers to spend more per transaction through bundles, upsells, or minimum thresholds for free shipping, your ROAS improves without changing a single thing about your ads.
Final Thoughts
ROAS is one of the most useful numbers in your marketing toolkit. But it's a starting point, not an ending point. A strong ROAS means nothing if your margins don't support it. A seemingly low ROAS might actually be fine if it's driving long-term customer relationships worth far more than a single transaction.
Know your break-even ROAS. Know the difference between platform ROAS and blended ROAS. Know that creative quality and post-click experience matter just as much as bidding strategy and audience targeting.
The businesses that win at advertising aren't the ones spending the most. They're the ones who understand their numbers well enough to spend smarter.
FAQs
What is a good ROAS for a new business?
There's no single answer, but 4x is a commonly cited benchmark. The problem is that "good" depends entirely on your margins. Calculate your break-even ROAS first using the formula above. If your margins are thin, you might need 6x or higher just to break even. If you're selling digital products with high margins, even 2x might be solidly profitable. New businesses often accept lower ROAS initially to build data and brand awareness, then optimize from there.
Can a campaign have a high ROAS and still lose money?
Absolutely. If your profit margin is 20%, your break-even ROAS is 5x. A campaign delivering 4x ROAS is generating revenue but losing money on every sale once you account for product costs, shipping, and fees. This is why understanding your margins before interpreting ROAS is so important.
How does ROAS differ from ROI?
ROAS measures revenue relative to ad spend only. It's a tactical metric for evaluating advertising performance. ROI measures net profit relative to all business costs including products, salaries, tools, and overhead. It's a strategic metric for evaluating overall business health. A business can have excellent ROAS but negative ROI if the broader business model isn't profitable.
Why is my Meta ROAS lower than my Google ROAS?
Google captures people who are actively searching for what you sell. That intent-driven traffic converts at higher rates. Meta reaches people who weren't looking for you, which means more convincing is needed before they buy. Both platforms serve important but different roles. Meta's lower ROAS doesn't mean it's less valuable, it might be building the awareness that eventually drives your Google conversions.
Does ROAS account for shipping and taxes?
Standard ROAS does not. It only looks at revenue versus ad spend. To get a more accurate picture of actual profitability, use margin-adjusted ROAS, which factors in your gross margin after costs. This gives you a much more honest view of whether your ads are actually contributing to profit or just generating revenue that disappears once real costs are considered.