ROAS (Return on Ad Spend) measures how much revenue you've generated for every euro invested in advertising. A ROAS of 4 means that for every euro spent, you recover four in sales. Simple enough so far. The problem starts when that figure gets interpreted without connecting it to the one thing that actually matters: your margin.
There's no such thing as a universal "good ROAS"
It depends entirely on your profit margin. With a 20% margin, you need a much higher ROAS to be profitable than with a 60% margin. Any figure you're told without knowing your specific margin is, at best, a rough guide.
The example that makes it clear
Picture a 25% margin and a ROAS of 3: for every euro invested, you recover three euros in revenue, but of those three euros only €0.75 is real margin. Less than the euro you invested. That "positive" ROAS is actually hiding a loss.
Cost per click can be misleading too
A low CPC looks good on paper, but if those clicks don't convert, it's money lost all the same. And the other way round: a high CPC can be perfectly profitable if the traffic it brings converts much better than average.
How to actually improve it
- Fine-tuning targeting to reach people who genuinely have a chance of buying.
- Improving the landing page, so more of the visits you're already getting convert.
- Excluding people who already bought or don't fit your ideal customer.
- Testing different creatives and keeping the ones that perform best.
Measuring ROAS while knowing your real margin is what separates a campaign that "looks like it's doing well" from one that's actually turning a profit.
ROAS isn't the same as ROI
They're cousins, not twins. ROAS only looks at revenue versus ad spend; ROI (return on investment) also subtracts other costs (production, logistics, staff) to give a fuller picture of the business's real profitability. A high ROAS doesn't guarantee a positive ROI if the rest of the costs eat up the margin.
Frequently asked questions
What minimum ROAS do I need to avoid losing money?
It depends on your margin: divide 1 by your margin (as a decimal) to find your break-even ROAS. With a 25% margin, that minimum is 4 (1 ÷ 0.25).
Should I pause a campaign with low ROAS?
Not always immediately: some "first touch" campaigns aimed at new customers have a lower ROAS but feed later remarketing, which usually has a much better ROAS. Look at the whole picture, not just each campaign in isolation.
How do I find my real margin to calculate all this?
Subtract the product cost, shipping, payment gateway fees and any other direct cost tied to that sale from the sale price. What's left is your real margin, the basis for this whole calculation.