What Is a Good ROAS?

How Do You Work Out a Good ROAS Number for Your Business?

Start from your break-even ROAS, the point where what ad-driven sales leave after their own costs exactly covers the ad spend, and set your target above it by enough to leave a profit. ROAS (return on ad spend) is revenue from ads divided by the spend, so the break-even is one divided by your margin after the costs that come with each sale. The Channel Selection step covers the tracking that makes the inputs trustworthy. How to Calculate ROAS shows the calculation step by step, and How to Calculate Break-Even ROAS goes through the formula in more depth.

1. Get your gross margin from finance for the products or services the ads sell, since one blended company margin can hide a low-margin line the ads happen to favor.
2. Divide one by your margin after the costs that come with each sale to get your break-even ROAS, the ROAS at which ad-driven sales only pay for the ads. That margin is gross margin minus per-sale costs such as payment fees, shipping and commissions, which is contribution margin.
3. Add agency fees, tools and channel-only creative to your ad spend before you calculate the ROAS you compare with that floor, because a campaign that only covers its media spend is still losing money.
4. Adjust for what customers buy later, if they come back, since a first sale that only breaks even can still be a good customer over several years.
5. Set the target above that floor by the profit you want, and use it to judge campaigns and to set any target ROAS in the platform.

We'll use one running example: a commercial HVAC contractor doing about forty million dollars a year, which sells maintenance agreements to property management firms through Google search, LinkedIn ads and a local building owners' association.

Why Don't Industry Average ROAS Figures Tell You What's Good?

An average ROAS mixes businesses with different margins, different definitions of revenue and different attribution settings, so even an accurate average can't tell you whether your own campaigns make money. The same ROAS can be excellent for one business and loss-making for another, because what matters is how much gross profit each dollar of revenue carries.

That's why we haven't quoted a benchmark here. The figures that rank for this question, for Google, Facebook and Amazon alike, come mostly from software vendors and agencies summarizing the accounts they can see, so before you use one, check how many businesses it covers, what margins they run on, and whether the revenue was counted by the platform or by the business. A platform average can describe its typical advertiser well enough and still tell you nothing about a business with your margin.

A distributor that took comfort from an average would keep funding a campaign that loses money on every sale, while a high-margin business chasing the same average might cut campaigns that were paying back well.

Why Is the ROAS in Your Ad Platform Higher Than the Real One?

Platform-reported ROAS is usually higher than the real figure because each platform counts every sale it touched, including people who saw an ad and bought later anyway, and two platforms will both claim the same customer. The platform also counts whatever you told it to count as a conversion, at whatever value you gave it, so its ROAS is only as honest as that setup.

For a company that sells offline, the platform can't see the signed deal at all unless your CRM sends it back, so its revenue figure is an estimate built on form fills and assigned values, which is why we compare every platform's ROAS with the revenue in a CRM the business controls. How to Measure Digital Marketing ROI shows what that comparison turned up in an account we manage.

A target set on the platform's figure would let the contractor accept campaigns that are a good deal weaker than they look, so set your target, and judge results against it, using revenue you can trace to signed customers.

Should ROAS Count Only Ad Spend, or All Marketing Costs?

ROAS as the platforms calculate it counts only ad spend, which is fine for day-to-day bidding but too narrow for budget decisions, so count agency fees, tools and channel-specific creative when you decide where money goes. Google defines target ROAS as "the average conversion value (for example, revenue) you'd like to get for each dollar you spend on ads",¹ which leaves both your margin and your other costs out of the ratio.

That's why budgets should run on ROI measured on gross profit from the customers a channel won, after everything it cost to win them, which How to Measure Digital Marketing ROI works through channel by channel.

To put this into practice:

• Set any target ROAS in the platform from your break-even, never from a published average, and raise it if the agency or tools cost meaningfully more than the media.
• Send signed customers or qualified leads back to the platform with realistic values, because a platform learns to find more of whatever you count, and counting every form fill teaches it to find people who look and don't buy.
• Judge each channel's budget on ROI from your CRM, on gross profit, and keep platform ROAS for adjusting bids inside a channel you've already decided to fund.

When Is a ROAS Below Break-Even Still Worth It?

A ROAS below break-even on the first sale can still be worth it when customers keep buying, because the later purchases carry the profit the first one didn't. How far below you can go depends on your business: how much a customer is worth over their lifetime, how much of that profit arrives early, how much cash you can tie up while you wait to earn it back, and how fast you're trying to grow.

A business whose customers buy once has no later sales to make up the difference, so its first-sale break-even is the floor. A business whose customers stay for years can accept a lower first-sale ROAS, but only if it has measured that they do stay, since a lifetime value that hasn't been measured is a guess, and the plan built on it inherits that guess.

A new campaign may run below break-even while the platform learns, which is reasonable for a planned period with a stated end, but treat it as an investment you've decided to make rather than a ROAS you've judged to be good.