What Is a Good ROAS? How to Work Out Yours
There's no universal good ROAS. The right number depends on your margin and what a customer is worth. Here's how to work out yours.
Key takeaways
- A good ROAS depends on your gross margin: break-even ROAS is 1 divided by your margin.
- Platform-reported ROAS often includes sales that would have happened anyway.
- New-customer ROAS and contribution margin are better measures for growth.
- Repeat purchases can justify a lower first-order ROAS if you know your numbers.
ROAS in one line
Return on ad spend is revenue from ads divided by what you spent on them. Spend £1,000 and make £4,000 in attributed revenue, and your ROAS is 4. The question is whether 4 is good, and that depends entirely on your margin.
Work out your break-even ROAS
Break-even ROAS is 1 divided by your gross margin. If you keep 50% of each sale after product and fulfilment costs, you break even at a ROAS of 2. If you keep 25%, you need a ROAS of 4 just to cover the ad cost. Anything above break-even contributes to overheads and profit; anything below loses money on the first order.
This is why comparing your ROAS with another brand's is meaningless unless your margins are the same.
Why platform ROAS can mislead
Ad platforms count conversions they can link to an ad, including returning customers who would have bought anyway and sales also claimed by other channels. Platform ROAS can look healthy while the business barely grows. Check it against total sales and new customer numbers.
Better numbers to watch
New-customer ROAS: revenue from first-time buyers divided by spend.
Cost per new customer: spend divided by new customers acquired.
Contribution margin after ad spend: what is left once product, fulfilment and ads are paid for.
Blended ROAS: total revenue divided by total ad spend across every channel.
When a lower ROAS is fine
If customers come back and buy again, you can afford a lower ROAS on the first order, as long as you know how much repeat revenue to expect and how long it takes to arrive. Brands that track this can outbid competitors who judge every campaign on first-order ROAS. Read how to run paid search without burning budget for more.
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Frequently asked questions
What is a good ROAS?
A good ROAS is one above your break-even point, which is 1 divided by your gross margin. A brand with a 50% margin breaks even at a ROAS of 2.
How do I calculate break-even ROAS?
Divide 1 by your gross margin as a decimal. For a 40% margin, break-even ROAS is 1 divided by 0.4, which is 2.5.
Is a ROAS of 4 good?
It depends on margin. With a 50% margin, a ROAS of 4 is profitable on the first order. With a 20% margin, it loses money unless customers buy again.
What should I measure instead of ROAS?
Cost per new customer, new-customer ROAS, contribution margin after ad spend and blended ROAS across all channels.
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