How to calculate ROAS (return on ad spend)
ROAS is the workhorse metric of paid marketing, measuring the direct revenue return on advertising. It is used to judge campaigns and channels and to decide where to shift budget.
ROAS is narrower than CAC or LTV to CAC. It looks at ad revenue against ad spend, not the fully loaded cost or lifetime value, so it is best used alongside those broader metrics.
- Ad revenue / ad spend The formula
- 4:1 A common target
- Ad-focused Narrower than CAC
Short answer
Return on ad spend measures revenue generated per dollar of advertising. Divide the revenue attributed to ads by the ad spend that produced it. If 40,000 dollars of ad spend drove 160,000 dollars of revenue, ROAS is 4 to 1. ROAS focuses on ad revenue, while CAC captures the full cost of acquiring a customer.
Step by step
Attribute revenue to ads
Determine the revenue attributable to your advertising, using your attribution model. Be consistent about the model so ROAS is comparable across campaigns.
Total the ad spend
Sum the advertising spend for the campaign or channel and period being measured.
Divide revenue by spend
ROAS equals ad-attributed revenue divided by ad spend, expressed as a ratio like 4 to 1.
Set targets by margin
Your break-even ROAS depends on gross margin. At an 80 percent margin, a 2 to 1 ROAS can be profitable; at thin margins you need a much higher ratio.
Worked example
A campaign spends 25,000 dollars and, by your attribution model, drives 100,000 dollars of revenue. ROAS = 100,000 / 25,000 = 4 to 1.
Whether 4 to 1 is good depends on margin. At 75 percent gross margin, that 100,000 dollars of revenue is 75,000 dollars of gross profit against 25,000 dollars of spend, a healthy return. At 25 percent margin, it would barely break even.
How Ardovo handles it
Ardovo ties ad spend to attributed revenue and shows ROAS beside CAC and payback, so paid performance is seen in full context. Rook flags campaigns whose ROAS looks fine but whose customers churn fast, where the fuller metrics tell a different story.
Frequently asked questions
What is the ROAS formula?
Revenue attributed to advertising divided by the ad spend that produced it, expressed as a ratio. A 4 to 1 ROAS means four dollars of revenue for every dollar of ad spend. Use a consistent attribution model.
What is a good ROAS?
It depends on gross margin. A common target is 4 to 1, but a high-margin business can profit at 2 to 1 while a thin-margin one needs much more. Set your target from your break-even margin, not a generic number.
What is the difference between ROAS and CAC?
ROAS measures ad revenue against ad spend, a channel-level view. CAC is the fully loaded cost to acquire a customer, including salaries and tools. ROAS judges ad efficiency; CAC judges overall acquisition cost.