The ROAS formula
ROAS (return on ad spend) = revenue from ads ÷ ad spend
Break-even ROAS = 1 ÷ gross margin
Profit after ads = revenue from ads × gross margin − ad spend
Example: you spend $2,000 on ads and they bring in $8,000 in sales. Your ROAS is 4, often written 4:1 or 400%. With a 40% gross margin those sales leave $3,200 of gross profit, so you break even at a ROAS of 2.5, and the ads made you $1,200 after paying for themselves.
ROAS tells you what your ads bring back
ROAS, or return on ad spend, is the sales your ads brought in divided by what you paid for them. Spend $2,000, bring in $8,000, and your ROAS is 4: every dollar of ads came back as four dollars of sales. This ROAS calculator does that math, then the part most people skip.
Why you need your break-even ROAS
Sales aren’t profit. If you keep 40 cents of every sales dollar after the cost of the product, your ads have to bring in $2.50 for every dollar just to pay for themselves. That’s your break-even ROAS: 1 divided by your gross margin. Below it, every sale from an ad loses money, even when the ROAS looks good on a dashboard.
How to use it
Enter your ad spend and the revenue those ads brought in over the same period. Use sales you can trace to the ads, from your own store’s numbers where you can. Add your gross margin to see your break-even ROAS and what the ads made after their cost. Don’t know your margin? Work it out with my Profit Margin Calculator first.
FAQs
How do you calculate ROAS?
Divide the revenue your ads brought in by what you spent on them. $8,000 in sales from $2,000 of ads is a ROAS of 4, often written 4:1 or 400%. Use the same period for both numbers.
Is a 2.5 ROAS good?
It depends on your margin. Your break-even ROAS is 1 divided by your gross margin. With a 40% margin you break even at exactly 2.5, so a 2.5 ROAS pays for the ads and nothing more. With a 60% margin, break-even is about 1.67 and 2.5 makes money. With a 25% margin you need 4, and 2.5 loses money.
What ROAS is 25% ACoS?
A ROAS of 4. ACoS, or advertising cost of sales, is the measure Amazon sellers use. It’s ROAS turned upside down: ad spend divided by the sales from those ads. To convert, divide 1 by the ACoS: 1 ÷ 0.25 = 4. A 50% ACoS is a ROAS of 2.
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