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Intermediate

What is ROAS

Full name: Return on Ad Spend

Also known as: return on ad spend, return on advertising spend

Definition

ROAS (return on ad spend) is the revenue an ad campaign brings for each shekel spent on it. It is not profit: a ROAS of 5 can still lose money after costs.

Why it matters

A ROAS of 5 sounds excellent and can still lose money.

Common mistakes

Reading any ROAS above 1 as profit, before the gross margin has paid for the ads.

Related terms

Worked exampleIllustration

A ROAS of 5 that lost money

A fictional small online shop spends ₪1,000 on Meta ads in a month. Its products carry a 15% gross margin. The numbers are invented.

  1. ROAS

    The platform reports ₪5,000 of sales from the ads.

    5,000 ÷ 1,000 = 5, or 500%

  2. Gross profit

    At a 15% gross margin, those sales leave this much after the cost of the goods.

    5,000 × 15% = ₪750

  3. After the ads

    The ₪750 of gross profit minus the ₪1,000 the ads cost.

    ₪250 loss

  4. Break even

    The ROAS this shop needs just to pay for its ads: one divided by the gross margin.

    1 ÷ 0.15 ≈ 6.7

  5. VAT

    If the reported ₪5,000 includes VAT, part of it is not the shop's revenue, and the true ROAS is lower still.

  6. A studio

    A pilates studio that closes its sales on WhatsApp sees no ROAS in the ad platform at all, because the platform never sees the sale.

Five shekels back for every shekel is still a loss when each shekel of sales leaves fifteen agorot.

Illustration

Formula

The numbers

₪5,000Sales the platform reports
₪1,000Ad spend
5ROAS, sales for each shekel of ads
The fictional shop's month on Meta. Google Ads writes the same ROAS as a percentage, so 5 reads as 500%.

From reported sales to profit

  • Sales the platform reports₪5,000

  • Cost of the goods sold−₪4,250

  • Gross profit at a 15% margin₪750

  • Ad spend−₪1,000

  • What the campaign left−₪250

Break even ROAS: ⁦1 ÷ 15% ≈ 6.7⁩. The campaign's ROAS is 5, or 500%.

At a 15% margin, a ROAS of 5 leaves ₪750 of gross profit, and after the ads the campaign lost ₪250. It needed a ROAS above 6.7 just to pay for its own ads.

If the reported sales include VAT, part of them is not the shop's revenue, and the true ROAS is lower still.

The fictional shop's month on Meta, values without VAT.

Definition

ROAS divides the revenue a campaign brought by what its ads cost. It is written as a ratio, 5 or 5:1, or as a percentage, 500%, and both mean five shekels of sales for each shekel of ads. Google Ads sets Target ROAS as a percentage. The revenue is the value the platform reports, so it exists only when sales happen where the platform can see them, such as a checkout on the site, or when you import sales from your own records. ROAS leaves out the cost of the goods, delivery and every other cost, which is why it is not ROI.

Why it matters

What decides is the gross margin, the share of each shekel of sales left after the cost of the goods. Break even ROAS is 1 divided by the gross margin, so at a 15% margin a campaign needs a ROAS of about 6.7 just to pay for its ads. Know that number before you judge any campaign by its ROAS. The platform's figure can also claim credit that another channel deserves, which the attribution entry explains.

Directly related: ROI, Gross margin, Attribution.

Formula

ROAS = Revenue from Ads / Cost of Ads

Improvement tips

  • Calculate your break even ROAS, 1 divided by the gross margin, before you look at any campaign.
  • Know whether the sale values your site sends to the ad platforms include VAT, and read the ROAS with that in mind.
  • Compare the sales the platform reports with your own sales records every month.
  • If your sales close on WhatsApp or by phone, judge campaigns by cost per customer, or import your sales into the platform from your own records.

Common mistakes

  • Leaving VAT inside the reported sales, which makes ROAS look better than it is.
  • Adding up the ROAS each platform reports, when two platforms may claim the same sale.
  • Using ROAS where the ad platform never sees the sale, as in a business that sells on WhatsApp.
ROI vs ROAS

Related terms

FinanceBeginner

ROI

ROI (return on investment) is a percentage showing what an investment earned net of its cost: the gain from it minus its cost, divided by the cost, times 100.

FinanceBeginner

Gross margin

Gross margin is the share of revenue left after the cost of goods sold: (revenue - COGS) ÷ revenue × 100. At 60%, 60 agorot of each shekel remain.

MarketingAdvanced

Attribution

Attribution is how credit for a sale is split between the ads and channels a customer met before buying. The rule you choose, the model, decides the split.

MarketingIntermediate

CPA

CPA (cost per acquisition) is what you pay on average for one conversion you chose to count, such as a booking or a sale: spend divided by those conversions.

FinanceBeginner

COGS

COGS (cost of goods sold) is the cost of the goods or services sold in a period: goods, materials and direct labour. Revenue minus COGS is gross profit.

FinanceBeginner

Revenue

Revenue is everything a business sold in a period, before any costs and without the VAT on the invoice. It is the P&L's top line, not profit and not cash.

From the blog

Digital Marketing on a Tight Budget: Focus Before Spend

How a small service business can win its first clients on a tight budget: a narrow audience, direct outreach, referrals and honest measurement.

Quick check

A campaign cost ₪1,000 and brought ₪5,000 of sales at a 15% gross margin. What happened?

Choose an answer

Frequently asked questions

What does ROAS mean in plain words?
How many shekels of sales came back for each shekel spent on ads. ₪5,000 of sales from ₪1,000 of ads is a ROAS of 5.
Is a ROAS of 5 the same as 500%?
Yes. Some reports show ROAS as a ratio, and Google Ads sets Target ROAS as a percentage. 5, 5:1 and 500% all mean five shekels of sales for each shekel of ads.
What is a good ROAS?
One above your break even, which comes from your own margin: 1 divided by the gross margin. At a 40% margin break even is 2.5, at 15% it is about 6.7. No number from another business fits yours.
What is the difference between ROAS and ROI?
ROAS divides sales by ad spend only. ROI divides profit by the whole investment. A campaign can show a high ROAS and a negative ROI, which the ROI vs ROAS comparison lays out.
Why is my ROAS high while the bank account is not growing?
Often because ROAS counts sales, not profit. After the cost of the goods, delivery and returns, a high ROAS can still be a loss. Check the platform's sales against your own records too.
Does VAT affect ROAS?
It can. If the sale values sent to Google or Meta include VAT, part of the reported revenue is money you pass on, not your revenue, so ROAS looks better than it is. Find out which value your site sends. Educational material, not legal or tax advice. Check your own case with a lawyer or an accountant.
My business sells on WhatsApp. Can I use ROAS?
Not directly, because the ad platform never sees the sale. Either judge campaigns by cost per customer, counted from your own records, or import your sales into the platform from those records so it can match them to the ads.
Why do Meta and Google both claim the same sales?
Each platform counts the sales it can link to its own ads, and one customer may have met both. Add up the two reports and you can count more sales than the bank shows. The attribution entry explains how credit is split.
How do I raise ROAS?
Raise the conversion rate on the site, spend less on audiences and searches that do not sell, and raise the average order. Then check the margin: a higher ROAS on low margin products can still earn less.
Should a small shop use Target ROAS?
It lets Google Ads set the bids to reach the return you choose, so the number you set has to come from your own break even. Set it from your margin, not from a round number that sounds good.
Do I need an accountant to calculate break even ROAS?
No, only your gross margin. If you are not sure of it, your accountant can tell you what share of sales is left after the cost of the goods.
Is ROAS useful at all, then?
Yes, to compare campaigns of the same shop with the same margin, and to see quickly which ones fall below break even. It cannot tell you on its own whether you made money.

Sources: Google Ads Help, "About Target ROAS bidding" (support.google.com/google-ads/answer/6268637)

Last reviewed: 2026-09-24

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