ROAS (Return on Ad Spend)
A metric measuring revenue generated for every dollar spent on advertising, calculated as revenue divided by ad spend.
Definition
Return on Ad Spend (ROAS) measures the effectiveness of advertising campaigns by calculating how much revenue is generated for each dollar invested. The formula is simple: Revenue ÷ Ad Spend = ROAS. A ROAS of 4:1 means you earn $4 for every $1 spent on ads.
ROAS differs from ROI in that it focuses specifically on ad spend rather than total investment. It's the primary efficiency metric for e-commerce and direct-response advertising, helping marketers evaluate campaign profitability and optimize budget allocation.
Why It Matters
ROAS provides a clear, comparable measure of advertising efficiency across campaigns, channels, and time periods. It enables data-driven decisions about where to invest budget and which campaigns to scale, pause, or optimize.
Understanding your target ROAS—based on margins and business model—is essential for profitable advertising. A 4:1 ROAS might be excellent for one business but unsustainable for another with lower margins.
Examples in Practice
An e-commerce brand discovers Facebook ads deliver 5:1 ROAS while Google Shopping achieves 8:1, prompting budget reallocation.
A subscription service calculates that 2:1 ROAS is profitable given their customer lifetime value, enabling more aggressive acquisition spending.
A retailer segments ROAS by product category, discovering high-margin items justify lower ROAS targets than assumed.