Digital marketing glossary
What is ROAS (return on ad spend)?
Written and reviewed by L.K. Monu Borkala · Updated
Definition
ROAS (return on ad spend) measures how much revenue your ads bring in for every rupee you spend on them. A ROAS of 4, often written as 4x or 400%, means each ₹1 of ad spend brought back ₹4 of revenue. It is the main efficiency number for ecommerce and other sales-driven ad campaigns.
How it works
Divide the revenue that came from your ads by what you spent on those ads. Google Ads and Meta Ads Manager report ROAS automatically once purchase tracking with order values is set up, for example through Google Ads conversion tracking or the Meta Pixel. Each platform credits sales using its own attribution settings, so totals across platforms can add up to more than your real sales. ROAS also ignores product costs, delivery, returns and fees. To know whether ads are profitable, work out your break-even ROAS, which is 1 divided by your profit margin before ad costs. At a 25% margin, you need at least 4x just to break even.
Formula
ROAS = Revenue from ads ÷ Ad spend
Example
Take a D2C spice brand in Kerala that spends ₹20,000 on Meta ads in a month and tracks ₹90,000 in sales from them. Its ROAS is 4.5. That sounds good, but after the cost of spices, packaging, courier charges and payment fees, its margin before ads is about 30%, so its break-even ROAS is about 3.3. The ads are profitable, but with much less room than the headline number suggests.
An illustration: the business and the rupee figures are made up to show how the idea works.
Common mistake
Treating ROAS as profit. A ROAS of 3 can still lose money if your margins are thin or many orders are returned, which is common with cash on delivery. Another mistake is trusting platform-reported ROAS without checking it. Compare it against actual orders in your store dashboard or bank account every month.
Where you learn it
- Module 1: Digital Marketing Foundations
- Class: Setting Goals: SMART Goals & KPIs · read it free
- Module 6: Meta Ads (Facebook & Instagram)
- Class: Budgeting & A/B Testing
- Module 10: Advanced Growth
- Class: E-commerce Marketing
- Module 15: Marketplace Selling
- Class: Marketplace Ads (Sponsored Products)
Related terms
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