Key facts
- ROAS = revenue from ads ÷ ad spend; it can be shown as a ratio (4:1), a multiple (4x) or a percentage (400%)
- Break-even ROAS = 1 ÷ gross margin; at a 40% margin, break-even ROAS is 2.5
- ROAS ignores product costs, fees and overheads; ROI and profit on ad spend (POAS) include them
- Target ROAS (tROAS) is a Google Ads Smart Bidding strategy that bids for conversion value
- ROAS reporting only works if purchases and leads pass a conversion value and currency
- dijitul Google Ads management is from £150 a month + VAT, or 10 to 15% of ad spend, whichever is higher
The formula
ROAS = revenue attributed to ads ÷ cost of those ads.
If a Shopping campaign brought in four pounds of sales for every pound it cost, ROAS is 4. Platforms show it differently: Google Ads shows "Conv. value / cost" as a number, some tools show 400%, and people often say "4x" or "4:1". They all mean the same thing.
ROAS only works if each conversion has a value. For shops, the purchase event should pass the order value and currency. For lead generation, you can assign an estimated value to each lead type, or better, import the value of real sales from your CRM.
Break-even ROAS
A "good" ROAS depends on your margins. The quickest check is break-even ROAS:
Break-even ROAS = 1 ÷ gross margin
| Gross margin | Break-even ROAS |
|---|---|
| 20% | 5.0 |
| 30% | 3.3 |
| 40% | 2.5 |
| 50% | 2.0 |
| 70% | 1.4 |
Below break-even, each sale from ads loses money on the first order. Above it, there is profit left to cover overheads. Delivery costs, payment fees and returns all reduce your real margin, so include them for an honest figure.
ROAS, ROI and POAS
- ROAS measures revenue against ad spend only. Easy to see in ad platforms, but blind to product costs.
- ROI (return on investment) measures profit against the full cost, including management fees, product costs and overheads.
- POAS (profit on ad spend) uses gross profit instead of revenue. It needs product cost data fed into your tracking, but it stops you scaling low-margin products just because they sell well.
Also think about customer lifetime value. If customers reorder several times, a first-order ROAS below break-even can still be profitable, especially with good email flows bringing them back.
Target ROAS bidding
Target ROAS is a Smart Bidding strategy in Google Ads. You set the return you want and Google sets bids for each auction to try to hit it, using conversion values. It is common in Shopping and Performance Max campaigns.
Things to know:
- It needs reliable conversion values and a steady volume of conversions to learn.
- Set the target too high and the campaign spends very little. Too low and it spends freely at poor returns.
- Change targets gradually and give the strategy time to adjust.
- Maximise conversion value with an optional target ROAS is how Google now labels this in many campaign types.
Using ROAS in practice
- Set targets by product group. A single account-wide ROAS hides products that lose money. Split Shopping or Performance Max by margin band so high-margin items can bid harder.
- Separate brand from non-brand. Searches for your own name produce very high ROAS that flatters the total. Judge non-brand campaigns on their own.
- Watch new customers. A campaign that mainly reaches existing customers may report strong ROAS while adding little.
- Review over sensible periods. Daily ROAS swings with order timing. Look at weeks and months.
Why your ROAS figures disagree
Google Ads, Meta and GA4 will each report different ROAS for the same period. Reasons include different attribution models, click and view-through windows, conversion dates (click date or purchase date), consent gaps and cross-device journeys. Pick one source of truth for decisions, usually your shop or CRM revenue compared with total ad spend, and use platform ROAS for optimising within each channel.
A useful overall check is sometimes called blended ROAS or MER (marketing efficiency ratio): total revenue in a period divided by total ad spend across every platform. It ignores attribution arguments entirely. If platform figures all improve but blended ROAS does not, the platforms are probably claiming credit for the same sales.
Our Google Ads management is from £150 a month + VAT, or 10 to 15% of ad spend, whichever is higher. Conversion tracking with values is £145 + VAT one-off. We set targets from your margins and never promise a ROAS in advance.
Frequently asked questions
What is a good ROAS?
One that is above your break-even ROAS and leaves enough profit to cover overheads. Break-even ROAS is 1 divided by gross margin, so a 40% margin needs at least 2.5. A business with high repeat purchase rates can accept a lower first-order ROAS than one that sells once.
How do I calculate ROAS?
Divide revenue from ads by the cost of those ads. If every pound spent brought in four pounds of sales, ROAS is 4, also written 4:1 or 400%. Make sure your conversion tracking passes the real order value, and decide whether you include VAT and delivery consistently.
What is the difference between ROAS and ROI?
ROAS compares revenue to ad spend only. ROI compares profit to the total investment, including product costs, management fees and overheads. A campaign can show a healthy ROAS and still lose money if margins are thin, which is why break-even ROAS matters.
Should I use target ROAS bidding?
It suits accounts with accurate conversion values and a steady flow of conversions, such as online shops. With few conversions, start with Maximise conversion value without a target, then add one once data builds up. Set targets from your margins, not a number you read online.
Why does Google Ads show a different ROAS from Shopify?
They count differently. Google Ads attributes sales to ad clicks using its own attribution model and timing, and models some conversions where consent was declined. Shopify records actual orders. Use your shop revenue against total ad spend for the overall picture.
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