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ROAS: What it is and how to use it

A practical guide to ROAS (Return on Ad Spend): definitions, formulas, benchmarks, and common pitfalls.

Updated 2026-01-05

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Definition

ROAS measures how much revenue you generate per dollar spent on ads. It's commonly used for paid social and search because it's fast to compute and easy to compare across campaigns.

Formula

ROAS = revenue attributed to ads / ad spend

Benchmarks (rule of thumb)

  • Higher ROAS is not always better: very high ROAS can mean you're under-spending on a scalable campaign.
  • A 'good' ROAS depends on gross margin and fulfillment costs. Tie ROAS targets to contribution margin, not vanity numbers.
  • Compare ROAS within the same attribution model and time window.

Common pitfalls

  • Mixing attribution windows (e.g., platform 7-day click vs analytics last-click).
  • Ignoring refunds, discounts, shipping, payment fees, and COGS.
  • Using short windows for products with long consideration cycles.

What to use alongside ROAS

  • Gross margin / contribution margin (profit matters).
  • CAC and payback period for subscription businesses.
  • Incrementality tests for mature accounts (geo holdout, conversion lift).

FAQ

What's the difference between ROAS and ROI?
ROAS is revenue divided by ad spend. ROI is profit relative to total cost. ROAS can look great while ROI is negative if margins or costs are poor.
Can ROAS be used for subscription businesses?
Yes, but it's often better to pair ROAS with CAC, payback period, and LTV since revenue may recur over time and churn matters.

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