---
title: "Return on ad spend"
url: https://marketingsignals.com/glossary/roas
type: Page
---

# Return on ad spend

ROAS explained: how to calculate return on ad spend, how Target ROAS bidding works in Google Ads, how to find break-even ROAS and why ROAS is not profit.

PPC glossary

## Return on ad spend (ROAS)

Return on ad spend (ROAS) is the revenue or conversion value earned for each pound spent on advertising, calculated by dividing conversion value by ad cost. Google Ads expresses it as a percentage, so £5 of sales from £1 of ad spend is a ROAS of 500%.

## How is ROAS calculated?

Divide the conversion value attributed to the ads by what the ads cost, then multiply by 100 for a percentage. Outside Google Ads the same figure is often written as a ratio, such as 5:1, or a multiple, such as 5x.

Target ROAS is the Smart Bidding strategy built on this measure. Google predicts the value of each potential conversion and sets bids to maximise conversion value while aiming for an average ROAS equal to the target. It needs values set on the conversions being tracked, and for Search and Shopping Google recommends at least 15 conversions in the past 30 days.

## Is ROAS the same as profit?

No. ROAS uses revenue, not margin. A business needs to know its break-even ROAS, which is 1 divided by its gross margin. At a 40% margin, break-even is 250%: anything lower loses money on the product cost alone, before delivery, returns and overheads.

ROAS also counts every attributed sale, including some that would have happened without the ad, such as repeat customers searching for the brand by name. High ROAS on brand terms often reflects demand that already existed.

## How to use it well

- Pass real order values, or lead values weighted by how often each lead type closes
- Set targets from margin, not from what last year's account achieved
- Report brand and non-brand ROAS separately
- Check headline ROAS against an incrementality test before scaling spend

## Example

A homeware retailer spends £8,000 in a month and Google Ads attributes £36,000 in sales, a ROAS of 450%. With a 40% gross margin, those sales leave £14,400 after product costs, so the campaign is profitable before overheads. The same ROAS at a 20% margin would leave £7,200, less than the ad spend.

## Related terms

- [Cost per acquisition (CPA)](https://marketingsignals.com/glossary/cost-per-acquisition)
- [Smart Bidding](https://marketingsignals.com/glossary/smart-bidding)
- [Performance Max](https://marketingsignals.com/glossary/performance-max)
- [Incrementality testing](https://marketingsignals.com/glossary/incrementality-testing)

## Further reading

- [A Visibility Playbook for E-commerce](https://marketingsignals.com/playbooks/the-e-commerce-visibility-playbook)

Our [Pay Per Click](https://marketingsignals.com/service/pay-per-click) service puts this into practice for brands in the UK and US.

## Sources

- [About Target ROAS bidding, Google Ads Help](https://support.google.com/google-ads/answer/6268637?hl=en)

## Ready To Make Your Ad Spend Work Harder?