Return on Ad Spend (ROAS) Calculator
What is ROAS?
Return on Ad Spend (ROAS) is a marketing metric that measures the revenue generated for every dollar spent on advertising. It is calculated by dividing the revenue earned from advertising by the cost of the advertising spend.
The formula for ROAS is:
ROAS = Revenue from Advertising / Cost of Advertising Spend
Sometimes ROAS is expressed as a percentage. To get this, you multiply the result by 100.
For example, $4500 / $1000 * 100 = 450%.
What Factors Impact Your ROAS?
A number of factors impact your ROAS, such as:
- Industry
- Profit margins
- Business goals
What is Considered a Good ROAS?
Here’s a general range and what could be considered good, or not good:
| ROAS Range | Interpretation |
|---|---|
| 8 or higher | Great |
| 5 – 7.9 | Good |
| 3 – 4.9 | Okay |
| 2 – 2.9 | Not Good |
| Below 2 | Poor |
Explanation:
- Great (8 or higher): An ROAS of 8 or higher is considered exceptional. This means for every $1 spent on advertising, you are generating $8 or more in revenue. This is a very high return and indicates highly effective and profitable advertising campaigns.
- Good (5 – 7.9): An ROAS between 5 and 7.9 is considered good. At this range, you are generating at least $5 in revenue for every $1 spent on advertising, which is a healthy return on investment.
- Okay (3 – 4.9): An ROAS between 3 and 4.9 is considered okay or average. While the advertising campaigns are profitable, the returns are relatively modest compared to the ad spend.
- Not Good (2 – 2.9): An ROAS between 2 and 2.9 is considered not good or marginal. At this range, you are generating less than $3 in revenue for every $1 spent on advertising, which may not be sustainable in the long run.
- Poor (Below 2): An ROAS below 2 is considered poor. This means you are generating less than $2 in revenue for every $1 spent on advertising, indicating that the advertising campaigns are not profitable and need to be reevaluated or optimized.
ROAS Example: How ROAS Effects Profit
Let’s take an example. Say we have a hair product that helps slow hair loss by 15% in men. Amazing! Here’s how it would look if we had a ROAS of 2.
| Sale Price | $50 |
| Cost | $25 |
| Gross Margin ($) | $25 |
| Gross Margin (%) | 50% |
| ROAS | 2 |
| Revenue from Advertising | $2,000 |
| Less Ad Spend | $1,000 |
| Less Cost of Product (50%) | $1,000 |
| Profit | $0 |
In this scenario, with a ROAS of 2, we break even.
This may be acceptable from your standpoint because you know that once a customer tries your product, they’ll buy again.
Thinking about ROAS in this way, you’ll not only understand why a higher ROAS is better, but you’ll see the effect of profit margin on your on your overall bottom line.