What is ROAS? Definition, formula and how to interpret it for ecommerce
ROAS (Return on Ad Spend) is the metric every ad platform reports. But it only tells half the story. Here is what it measures, what it does not — and when it is enough to make decisions.
Calculate my ROASWhat ROAS measures
ROAS answers one question: for every dollar I spend on ads, how many dollars in revenue do I get back? It is a revenue efficiency metric, not a profitability metric.
ROAS formula
ROAS = Revenue ÷ Ad Spend
Example: $4,000 revenue ÷ $1,000 spend = 4x ROAS
ROAS vs ROI: what is the difference?
ROAS does not deduct the cost of goods. ROI does. You can have a 4x ROAS and still be unprofitable if your gross margin is 20% (you need a 5x minimum ROAS to break even). Always calculate minimum ROAS for your margin before evaluating campaign performance.
Can I trust my platform's reported ROAS?
With caution. Platforms use attribution models that tend to over-credit their own channel. They count view-through conversions, use long attribution windows and sometimes include tax in revenue. Always compare against actual orders in your store, filtered by UTM source and medium.
Minimum ROAS to break even
Minimum ROAS = 1 ÷ Gross margin
With 40% margin: 2.5x minimum · With 30% margin: 3.33x · With 25% margin: 4x