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How to Calculate ROAS: A Step-by-Step Formula for Better Ad Results

IInfotanksDeveloper

April 4, 2025

Successful advertising campaigns generate $4 in revenue for every $1 spent i.e. a 400% return. This 4:1 ratio represents the gold standard many businesses want to achieve in their advertising efforts. Your campaign’s success or failure largely depends on how well you calculate your ROAS (Return on Ad Spend). Many businesses leave out significant costs in their ROAS formula. These miscalculations create inflated numbers that don’t show the real campaign results.

Every business running paid campaigns needs to understand the right way to calculate ROAS. We’ll show you everything about measuring your advertising success – from simple ROAS calculations to break-even formulas and industry standards. You can make smarter advertising decisions with the right ROAS calculations. Let’s head over to the exact formulas and steps you need.

Understanding ROAS Fundamentals

ROAS (Return on Ad Spend) shows how much money your business makes for every dollar you spend on advertising. This metric helps you figure out if your ad campaigns make money or just waste your budget.

What constitutes a good ROAS

Many businesses see 4:1 as the gold standard. This means they make $4 in revenue for every $1 they spend on ads. The definition of a “good” ROAS isn’t the same for everyone – it changes based on your business goals.

Your profit margin is the most important factor that determines what makes a good ROAS. Businesses with slim margins need higher ROAS to stay profitable. Those with high-margin products can do well with lower ROAS. To name just one example, companies with small profit margins might need 6:1 or higher, while others with bigger margins can thrive at 3:1.

On top of that, it matters where your business stands in its journey. Long-standing companies want higher ROAS, but startups often accept lower returns while they grow. Brand awareness campaigns naturally bring in lower immediate returns than direct-response campaigns.

Industry benchmarks and standards

Each industry has its own ROAS expectations based on how they make money and what it costs to get new customers:

E-commerce/Retail: 4:1 to 6:1 shows strong results
B2B Technology: 3:1 to 5:1
SaaS companies: 3:1 to 4:1
High-margin industries (luxury goods): 2:1 can work well

Google Ads users see an average 200% ROAS (2:1), but this jumps to 8:1 on the Google Search Network. Meta Ads (Facebook/Instagram) brings in 2.23:1, while Amazon’s ad platform delivers an impressive 4.81:1.

Some industries naturally perform better than others. Automotive parts (9.60:1), marketplaces (9.60:1), and car accessories (8.19:1) see excellent returns. Healthcare (1.49:1), pets (1.67:1), and wellness (1.82:1) typically see lower numbers.

These standards give you good reference points, but keep in mind that your “good” ROAS depends on your profit margins and business goals. Break-even ROAS – where ad costs match generated revenue – sets the bare minimum.

How to Find Your Break-Even ROAS

You need to know your break-even point before spending a single dollar on ads. This critical threshold shows the exact ROAS where you neither lose money nor make a profit. It acts as your financial guardrail for all advertising campaigns.

The break-even ROAS formula

Break-even ROAS shows the minimum return needed to cover all costs of your product and advertising. Here’s the simplest way to calculate it:

Break-Even ROAS = 100% / (Gross Profit Margin%)

Let’s look at a real example. If you sell a product for $100 with a 20% profit margin ($20 profit per sale), your break-even calculation looks like:

100% / 20% = 5

This means you need a ROAS of 5:1. For every $1 you spend on advertising, you must generate $5 in revenue just to break even. Any less and you’re losing money.

Here’s another way to calculate: Product sale price / break-even point. Using our same example:

$100 / $20 = 5 ROAS

Factoring in profit margins

Your profit margins determine how much you can spend on advertising while staying profitable. To name just one example, see these scenarios:

High margin products (50%+): Stay profitable with ROAS as low as 2:1
Medium margin products (25-49%): Need 3:1 to 4:1 ROAS
Low margin products (<25%): Might need 5:1 ROAS or higher

One resource points out, “If you have a high profit margin then you can likely afford to spend more on advertising”.

Setting minimum ROAS thresholds

Your break-even ROAS is your absolute minimum threshold – where advertising costs match the profit generated. Here’s what your campaigns tell you:

ROAS above break-even: Your campaign makes profit and could scale
ROAS equal to break-even: Your campaign covers costs without profit
ROAS below break-even: Your campaign loses money

All the same, some businesses accept lower ROAS for a while to build brand awareness or capture market share. This approach makes sense when a customer’s lifetime value justifies your original acquisition costs.

Whatever strategy you choose, knowing your break-even ROAS helps you make informed decisions. You’ll know when to scale, optimize, or pause campaigns based on actual profitability, not just revenue figures.

Calculating ROAS Across Different Ad Types

The ROAS formula stays the same on every advertising platform. Each ad type needs its own measurement approach to get accurate results. Let’s get into how to calculate ROAS on different advertising channels.

Search ad ROAS calculation

The standard ROAS formula works perfectly for tracking search ad performance: revenue generated divided by ad spend. Google Ads search campaigns let you enable value-based bidding. Google’s AI predicts conversion values to maximize ROAS. These campaigns deliver impressive results with average ROAS around 13.76. Here’s how to calculate it right:

Add conversion values to all conversion actions in Google Ads
Set up proper tracking of transaction-specific values
Give enough time to collect data (at least 15-30 conversions in 30 days)

Display ad ROAS measurement

Display ads usually bring lower immediate returns than search ads because they focus on awareness. The best way to measure display ad ROAS involves:

Including view-through conversions with proper attribution windows
Breaking down campaigns by placement type to get a full picture
Looking at industry benchmarks (usually 2-3 ROAS)

Video ad ROAS tracking

Video advertising ROAS needs to factor in both immediate conversions and brand-building effects. The process should include:

Looking at video completion rates next to conversion data
Creating shorter videos (30-60 seconds) that boost engagement
Setting the right attribution windows to catch delayed conversions

Social media ad ROAS analysis

Each social platform offers different ROAS potential. Facebook leads with 10.68, Instagram follows at 8.83, and TikTok stands at 2.5. Social media ROAS calculation requires:

Setting up proper pixel tracking for better attribution
Understanding each platform’s attribution limits
Knowing that iOS privacy updates have cut tracking accuracy by 15-20%
Matching leads with social data for longer sales cycle campaigns

Social platforms often claim more credit than they deserve for conversions from other channels. That’s why measuring total ROAS across all media channels gives you the most accurate results.

Common ROAS Calculation Mistakes to Avoid

Most experienced marketers make critical errors when calculating ROAS, which leads to misguided advertising decisions. Your campaigns can avoid unnecessary budget cuts or misallocated spending by spotting these pitfalls early.

Overlooking attribution windows

Attribution windows determine the time period during which conversions get credited to your ads. Many businesses don’t adjust these settings properly and then miss valuable conversion data. Facebook’s default attribution window (7-day click, 1-day view) might not capture all conversions, especially for products with longer sales cycles.

Attribution settings became more complex after Apple’s iOS 14 updates, and many platforms now struggle to track user behavior accurately. Last-click attribution often undervalues top-of-funnel activities that contribute by a lot to conversions.

To solve this issue:

Customize attribution windows based on your specific sales cycle
Use multi-touch attribution models where possible
Cross-check conversion data across multiple platforms

Ignoring indirect costs

The biggest ROAS calculation mistake happens when businesses factor in only direct costs and forget indirect expenses. These overlooked costs include:

Creative production expenses
Platform and vendor fees
Personnel and management costs
Agency fees and software subscriptions

Your ROAS appears artificially inflated when these costs aren’t factored in. A campaign might show a promising 4:1 ROAS, yet barely break even once all costs are included.

Misinterpreting ROAS data

Double-counting revenue across multiple platforms creates the most dangerous mistake. Each advertising platform works in isolation and often claims full credit for the same conversion. To cite an instance:

Google might report a $200 purchase from a user who clicked their ad
Facebook might claim the same $200 purchase because the user interacted earlier
Pinterest might also take credit for that similar $200 purchase

This inflates perceived revenue to $600 when only $200 was actually earned. Siloed metrics also fail to account for other touchpoints in a customer’s buying trip.

Note that up-to-the-minute ROAS reporting provides instant gratification but often contradicts the reality of ad effectiveness. Accurate calculations require proper pixel tracking and cross-referencing platform data with your actual sales figures.

Conclusion

Businesses running paid advertising campaigns need to become skilled at ROAS calculations. My experience shows that successful ROAS tracking needs three key elements: break-even points, proper attribution settings, and a complete view of costs.

Each ad platform needs its own approach. Search ads usually bring higher returns, while display ads build awareness gradually. Your ROAS goals should align with your industry measures, profit margins, and campaign goals.

Many businesses make mistakes with their ROAS calculations that can get pricey and hurt their profits. IInfotanks SEO services can help you track and optimize your advertising campaigns accurately.

Your path to success lies in avoiding typical mistakes like missing indirect costs or reading platform data incorrectly. Your ROAS calculations must show your business’s actual profitability, not just basic metrics. Put these calculation methods to work now. Check your numbers often and tweak your strategy based on your performance data.

For finding the ideal ROAS and planning your ad campaign contact IInfotanks today and fell the difference with IInfotanks’ Premium PPC Services.