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.

If you want a ratio that builds profit in, see gross ROAS vs net ROAS, which works the same campaign both ways.

Common mistakes

Judging ROAS without margin. A ROAS target set in isolation is meaningless, so 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.