If you’re running ads to boost your ecommerce business, you want your efforts to pay off. Knowing how to calculate ROAS — or return on ad spend — tells you how effective your ads are. ROAS is a crucial metric for understanding your ad revenue.
But calculating and improving ROAS isn’t always easy. Many businesses struggle to capture accurate data, optimize campaigns, and consistently track performance.
Here, we’ll walk you through a simple ROAS calculation and why ROAS in marketing matters so much. We’ll also look at common pitfalls and advanced strategies to help you get the most out of every ad campaign.
Return on ad spend (ROAS) tells you how much revenue you’re getting back for every dollar you put into ads.
Your ROAS is your clearest indicator of whether your ads are getting your customers’ attention. By tracking this metric, you’ll know right away if your ad dollars are generating the revenue you expect.
Calculating ROAS is a powerful way to make smart, strategic decisions about where to put your ad dollars. It helps you plan your budget and figure out which campaigns deserve more fuel — and which might need a little tweaking.
While this concept is similar to ROI (or return on investment), it’s different in some important ways. When you’re comparing ROAS vs. ROI, think about ROI as the big-picture metric. ROAS zeroes in on ad-specific spending and revenue, while ROI considers everything: production costs, shipping, overhead, and more. In other words, ROI tells you if your entire investment pays off, not just your investment in ads.
Calculating ROAS is refreshingly simple when you use the ROAS formula. The formula goes like this:
ROAS = (Revenue from Ads) / (Cost of Ads)
Let’s break down this ROAS equation. Revenue from ads is the total income generated by your ads — everything earned from clicks that convert to sales. Cost of ads includes all the expenses directly tied to those ads, like ad placement costs, creative spend, and more.
For example, say you spent $5,000 on a Facebook ad campaign and earned $20,000.
Your return on ad spend formula would look like this:
ROAS = $20,000 / $5,000
This comes out to a Facebook ROAS of 4, meaning for every dollar you spent, you earned $4 back. Strong work! A ROAS of 4 or higher is generally a good indicator that your campaign is effective and profitable.
That was a Facebook example, but no matter which platform you’re using, the ROAS calculation formula is always the same. In fact, you can even calculate ROAS across many different platforms to determine your blended ROAS.
There are a couple of other ways you may see your ROAS results displayed: Some people prefer to multiply the result of the formula above by 100 to measure ROAS as a percentage. In our example, that would look like a ROAS of 400 percent. Others prefer to display ROAS as a ratio. With the same example, ROAS would be 4:1. No matter how you describe your ROAS, in this particular case, you made 4 times as much as you spent.
One additional calculation you may want to make is what’s called your breakeven ROAS. This is when you break even on acquiring a customer. Here’s the formula to use:
Breakeven ROAS = 1 / average profit margin
For example, if you have a profit margin of 25%, your breakeven ROAS is 1 / 0.25 or 4. This means you need a ROAS of 4 to break even. Anything less than that, and you’ll lose money on your ecommerce marketing.
Not into crunching the numbers? Triple Whale’s ROAS calculator does the math for you and saves you the time and effort.
All you have to do is enter your ad spend and revenue, and our tool will give you clear results so you can stay focused on making smart decisions.
You can also use our calculator to see different ad budgets and how they would affect your ROAS.
Lastly, if you’re a big spreadsheet fan, you can calculate ROAS in Excel or Google Sheets by entering the following into a cell:
=(C2/B2)*100
In this example, your revenue is in column C and your costs are in column B.
While the average ROAS across industries tends to hover around 2:1, according to Google’s Economic Impact report, a good ROAS to aim for is around 4:1. This means $4 in revenue for every $1 spent. But in some cases — like high-margin products or niche markets — you might see businesses aiming for a 10:1 ratio or higher.
Let’s take a look at how ROAS works at different scales with two real-world examples.
First, imagine a small start-up. This business spends $500 on a social media ad campaign and earns $2,000 in revenue. To calculate ROAS, divide the revenue by the ad spend:
ROAS = $2,000 / $500 = 4
This means they made $4 for every $1 spent — a solid return! With a tight budget, knowing this ROAS can guide their future ad investments, helping them identify what works without overspending.
Next, imagine a larger ecommerce business. Say they invest $50,000 in ads across multiple channels and bring in $150,000 in revenue. Using the same formula:
ROAS = $150,000 / $50,000 = 3
For every dollar spent, they’re earning $3. While the return is slightly lower, this larger-scale campaign can focus on other metrics, like lifetime customer value, to guide ad strategies.
In both cases, calculating ROAS provides valuable insight. Whether you’re a small start-up or a big business, knowing your ROAS lets you make informed decisions about budget allocation and campaign scaling. With Triple Whale’s tools, you can track ROAS effortlessly, ensuring your ad spend aligns with your growth goals.
When you first sit down to calculate ROAS, you might think it’s pretty straightforward. But it’s easy to make mistakes that can lead to inaccurate results. These little missteps can add up, resulting in a skewed view of your digital marketing efforts and ad performance.
Let’s go over some common errors and how to avoid them so you can keep your ROAS numbers on point.
Avoid these pitfalls and get an accurate ROAS with these tips:
There are some handy tools and resources that can help you avoid common ROAS mistakes and streamline the process of tracking your costs and revenue.
For ecommerce brands, Triple Whale is a standout. It’s designed to centralize all your metrics, offering a full view of ad performance across channels. With Triple Whale, you get real-time insights, which means no more guessing on whether your ads are hitting the mark.
Other tools that can help with tracking include:
You’ll likely rely more on tools the more campaigns you’re tracking. Manually calculating ROAS is easier when you’re keeping an eye on one or two campaigns, but it can quickly become overwhelming as you scale up. Automated platforms like Triple Whale that handle ROAS calculations instantly save you time and ensure your calculations are accurate when you’re tracking several campaigns.
But it’s not enough just to track your ROAS. You also need to take the crucial next step of ROAS analysis if you really want to evaluate campaign performance. The analysis process helps businesses understand revenue generated by advertising efforts and make data-driven decisions to optimize ad spend efficiency. By analyzing ROAS, you can clearly identify areas of improvement, optimize your ad campaigns, and increase your ROI.
To perform a thorough ROAS analysis, you can use various tools and techniques. For example, Google Ads provides detailed insights into your ad performance, allowing you to see which campaigns are driving the most revenue. (Google even allows you to set a target ROAS, an automated bidding strategy that ensures you see the specific return you want on your spend.)
Excel can create custom reports and track your ROAS over time. Data analytics software, like Triple Whale, offers advanced features for tracking and optimizing your ROAS across multiple ad platforms.
By regularly analyzing your ROAS, you can pinpoint which campaigns are delivering the best results and allocate your ad spend more effectively. This ensures every dollar you invest in advertising is working hard to drive growth for your business.
Once you’ve conducted your ROAS analysis, you can fine-tune your campaigns, maximize returns, and make sure every ad dollar is hard at work.
Here are some powerful methods to boost your ROAS:
The more effective your campaigns are, the better your ROAS will be. That means ad campaign optimization is an important part of improving your ROAS.
The process involves tweaking various elements of your campaign, such as ad targeting, ad creative, bidding strategies, and landing pages.
To start, focus on optimizing your ad targeting. By segmenting your audience based on behavior, demographics, or purchase history, you can create more personalized and relevant ads. This increases the likelihood of conversions and improves your ROAS.
Next, experiment with different ad creatives. A/B testing different versions of your ads can help you identify which images, copy, and calls-to-action (CTAs) resonate most with your audience. This allows you to refine your ads and boost their effectiveness.
Bidding strategies also play a crucial role in ad campaign optimization. Adjusting your bids based on performance data can help you get the most out of your ad spend. For example, you might increase bids for high-performing keywords or reduce bids for underperforming ones.
Finally, make sure your landing pages are optimized for conversions. A well-designed landing page with a clear CTA can significantly improve your conversion rate and ROAS.
By continuously monitoring, testing, and experimenting with ad performance data and different strategies, you can improve your ROAS, increase conversions, and reduce your cost per acquisition (CPA).
Attribution modeling is another crucial part of the process to improve your ROAS. It involves assigning credit to different marketing channels and touchpoints for driving conversions, which helps you understand the true effect of an ad campaign on customer acquisition and revenue.
You can pick from a number of attribution models, such as first-click, last-click, and multi-touch attribution. Each model provides a different perspective on how your marketing efforts contribute to conversions. By using attribution modeling, you can identify which channels and touchpoints are most effective and allocate your ad spend accordingly.
Factoring in customer acquisition cost (CAC) can also help you evaluate the effectiveness of an ad campaign. CAC is the cost of acquiring a new customer, and it helps you understand how much you’re spending to bring in new business. By comparing your CAC to your customer lifetime value (CLV), you can determine if your ad campaigns are profitable.
Understanding CAC and attribution modeling allows you to optimize your ad spend and improve your ROAS. By focusing on the most effective channels and reducing your CAC, you can drive more revenue and achieve better results.
Knowing how to calculate ROAS for your advertising campaigns gives you a clear evaluation of how well your ads are performing and enables you to make strategic decisions about budgets and campaigns.
But a good ROAS is only one part of the bigger picture. Pairing ROAS with other metrics like ROI ensures you’re looking at both short-term wins and long-term profitability. Consider ROAS alongside your CAC and CLV to keep your marketing dollars working hard.
Triple Whale can help make this process simple and intuitive. So go ahead—analyze, adjust, and keep pushing for the growth you’re after.
Get in touch to see how we can help you optimize your ROAS and drive better results.
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