The ROAS and ROI formulas
- ROAS = revenue attributed to ads ÷ ad spend. As a percentage: × 100.
- Gross profit generated = revenue × gross margin (the margin as a % of the selling price).
- Campaign profit = gross profit generated − ad spend − other costs.
- ROI = campaign profit ÷ (ad spend + other costs) × 100.
- Break-even ROAS = (ad spend + other costs) ÷ gross margin ÷ ad spend. With no other costs, it is simply 1 ÷ gross margin.
Google Ads shows ROAS in the "Conv. value / cost" column: total conversion value divided by cost. The same ratio times 100 is the target ROAS percentage used in bidding strategies. Other costs (agency fees, creative production, tools) are not in that column: add them in the calculator to get your real profit.
Three campaigns, three verdicts
| Campaign | ROAS | Margin | Profit | ROI |
|---|---|---|---|---|
| $5,000 of sales, $1,000 of ads | 5 | 30% | $500 | 50% |
| $3,000 of sales, $1,500 of ads | 2 | 40% | −$300 | −20% |
| $12,000 of sales, $2,000 of ads and $500 of agency fees | 6 | 50% | $3,500 | 140% |
The second campaign seems to double its money. But at a 40% margin, its break-even ROAS is 2.5: at 2, every dollar of advertising costs the business 20 cents. The third, agency fees included, needed a ROAS of 2.5 to pay for itself; at 6, it is clearly profitable.
The limits of ROAS
ROAS only measures the sales your tracking credits to the ads. Broken conversion tracking, or an attribution model that gives all the credit to the last click, can inflate it or crush it. It also ignores customer lifetime value: a low-ROAS campaign that brings in loyal customers can be more profitable than it looks.
For a service business that closes deals offline, replace revenue with the value of the contracts signed from the campaign. And to get your gross margin right, the margin calculator gives the exact figure from your cost and selling price.
Frequently asked questions
How do you calculate ROAS?
ROAS = revenue generated by your ads ÷ ad spend. $5,000 of sales for $1,000 of ads gives a ROAS of 5, which Google Ads also shows as a percentage: 500%. The revenue to use is the revenue your conversion tracking attributes to the campaign, before sales tax.
What is a good ROAS?
There is no universal good ROAS: it depends on your margin. Your break-even ROAS is 1 ÷ gross margin. At a 30% margin, you need a ROAS of 3.33 for the ads to pay for themselves; at 50%, a ROAS of 2 is enough. A good ROAS is one comfortably above your own break-even point.
What is the difference between ROAS and ROI?
ROAS compares revenue with ad spend only. ROI compares profit with all the costs: ROI = (gross profit generated − costs) ÷ costs × 100. A campaign with a ROAS of 5 and a 30% margin only makes $500 on $1,000 spent, an ROI of 50%, not 400%.
How do I set a target ROAS in Google Ads?
Google defines target ROAS as the average conversion value you want for each dollar you spend on ads: $5 of sales for $1 of ad spend is a target ROAS of 500%. Start from your break-even ROAS, add the profit you are aiming for, and check that the campaign gets enough conversions for the bidding algorithm to learn.