What is a good ROAS?

ROAS — Return On Ad Spend — is the headline metric every advertiser quotes, and the one most often misread. A "4x ROAS" sounds great, but whether it's actually making you money depends entirely on your margins. Here's how to calculate it and, more importantly, how to know what a good ROAS is for your business.

The formula

ROAS is simply revenue generated ÷ amount spent on ads. Spend £1,000 on a campaign that brings in £4,000 of sales, and your ROAS is 4 (often written 4:1 or 400%). It tells you how many pounds of revenue each pound of ad spend produced. That's it — it's a revenue-per-spend ratio, nothing more.

Why "good" depends on your margin

Here's the trap: ROAS measures revenue, not profit. A 4x ROAS is wildly profitable for a software company with 90% margins and potentially loss-making for a retailer with 20% margins. Revenue isn't the same as money in your pocket — your product costs, shipping, and overheads all come out first.

Break-even ROAS

The number that actually matters is your break-even ROAS — the point where the ads pay for themselves. The shortcut: break-even ROAS = 1 ÷ gross margin.

If your gross margin is 50%, your break-even ROAS is 1 ÷ 0.5 = 2. Below 2, you're losing money on ads; above 2, you're profitable. If your margin is 25%, break-even jumps to 4 — so that "great" 4x ROAS is actually just breaking even. Same ROAS, completely different verdict, purely because of margin.

So what's a good number?

There's no universal "good" ROAS — but a common rule of thumb is to aim for at least 3–4x as a healthy target for many e-commerce businesses, because it comfortably clears typical margins and leaves profit after the rest of your costs. The honest answer, though, is: a good ROAS is comfortably above your break-even ROAS, with enough headroom to cover the overheads that ROAS ignores. Work out your break-even first, then set your target above it.

ROAS vs ROI

Don't confuse the two. ROAS only counts ad spend against revenue. ROI (or true profit) accounts for all costs — product, fulfilment, staff, the ads themselves. You can have a strong ROAS and still lose money overall if your other costs are high. ROAS is a useful channel-level signal; profit is the scoreboard.

Common mistakes

Judging ROAS without margin. A ROAS target set in isolation is meaningless — always anchor it to your break-even.

Chasing the highest ROAS at all costs. A very high ROAS often means you're under-spending and leaving growth on the table. Sometimes a lower ROAS at much higher volume makes more total profit.

Ignoring lifetime value. If customers buy again, a campaign that looks break-even on the first order can be highly profitable once repeat purchases are counted.

Forgetting attribution quirks. Ad platforms tend to claim credit generously — your real, blended ROAS across all channels is usually lower than any single platform reports.