ROAS.
aka return on ad spend, ad return, revenue per ad dollar
For every dollar of ads, how many dollars of sales came back.
What it actually means
ROAS, return on ad spend, is revenue attributed to advertising divided by what that advertising cost. A ROAS of 4 means four units of sales for each unit spent. It measures revenue, not profit, so a ROAS that looks healthy can still lose money once product, shipping and fees are paid.
Spend US$1,000 on ads and record US$4,000 in sales: ROAS is 4, sometimes written 400%. Whether that is good depends on margin. If only 40% of each sale is left after product cost, fees and shipping, the US$4,000 leaves US$1,600, and US$600 after the ad bill.
The number to memorise is break-even ROAS: 1 divided by your margin before advertising. At a 40% margin it is 2.5. Below that, each sale from the campaign costs more than it brings in.
Where you'll hear it
The platform says ROAS is 5.2. Blended across all spend it is closer to 3.
Translation: the ad platform is taking credit for sales that would have happened anyway. The honest number is total revenue against total spend.
Also in agency dashboards, in budget meetings, in every advertising platform's own reporting (each one counts generously in its own favour), and in founder group chats at the end of November.
The pop-culture version
A studio spends 100 million making and promoting a film. It takes 300 million at the box office. On paper that is three back for every one spent.
But cinemas keep around half of ticket sales, so the studio receives about 150 million. Against a 100 million outlay, that is a modest win, not a triumph.
ROAS is the box-office-to-budget ratio. It sounds like profit and is not. You have to know how much of the takings you keep before the ratio means anything.
ROAS tells you whether an advert is working. Margin tells you whether it is worth it. You need both in the same sentence.
Say it like you mean it
“ROAS is 3.4 against a break-even of 2.5, so the campaign contributes after ad costs.”
States the result next to the threshold that gives it meaning.“We are getting a 3x ROAS, so we are profitable.”
Only if your margin before ads is above 33%. Many products are not.Whenever ROAS is quoted, ask for the break-even ROAS. If nobody knows it, nobody knows whether the ads make money.
Contribution margin, break-even ROAS and CAC payback, worked through with numbers.
Decoded next
Decoded by the Kurums editorial team. Kurums Decoded translates the language of business for people who are new to it. Definitions are kept short on purpose; the serious version above goes deep. Nothing here is financial, legal or career advice.
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