ROAS (Return On Ad Spend)

ROAS is a metric that measures how much money is earned for every euro (or other currency) spent on advertising.

In other words, it shows whether your advertising campaigns are profitable and how effective they are.

How is ROAS calculated?

The formula is very simple:

ROAS = (Revenue from advertising campaign) / (Cost of advertising campaign)

Often the result is expressed as a ratio or as a percentage.

Examples:

As a ratio:

If you spent 100 EUR on Google Ads advertising and earned 500 EUR from sales thanks to it, then:

ROAS = 500 EUR / 100 EUR = 5

This means that for every euro invested, you earned 5 euros back. It's often written as 5:1 ("five to one").

As a percentage:

The same result can also be expressed as a percentage. ROAS of 5 equals 500% return on investment.

Why is ROAS so important?

• Measures effectiveness: Shows which advertising channels, campaigns, and even keywords work best and bring the most money.
• Budget management: Helps you allocate your budget wisely. Campaigns with high ROAS deserve more money, while those with low ROAS should be optimized or stopped.
• Profitability calculation: ROAS by itself is not profit. It measures revenue, not profit. To understand your true profit, you need to subtract all costs from revenue (COGS - cost of goods sold, operational expenses, etc.). Ideally, you should know your target ROAS that accounts for these costs as well.

ROAS vs ROI

These two terms are often confused, but there's a key difference:

ROAS (Return On Ad Spend):

Focuses only on revenue from advertising spend. Answers the question: "How much money came back from my advertising?"

ROI (Return On Investment):

Measures overall profit (revenue minus all costs, not just advertising). Answers the question: "How much profit does my advertising generate?"

ROAS is more specific and directly related to advertising activities, while ROI is a broader economic indicator.

What is considered a good ROAS?

There's no universal answer, as this depends on:

• Profit margin of your product/service
• Campaign objectives (brand awareness vs. direct sales)

General guideline:

• ROAS below 3:1 (300%) may mean the campaign is unprofitable after subtracting all other costs.
• ROAS of 4:1 (400%) is often considered good.
• ROAS above 5:1 (500%) is considered very good.

Important: Companies with very high profit margins can afford lower ROAS and still be profitable.

Summary:

• ROAS = Advertising Revenue / Advertising Cost
• This is a key performance indicator (KPI) in digital marketing.
• Shows the effectiveness of advertising spend.
• Most commonly expressed as a ratio (e.g., 5:1) or percentage (500%).
• Helps in making decisions about advertising budget and campaign optimization.