How to use the ROAS calculator
Type the revenue your ads brought in and what you spent on them, and the calculator shows your return on ad spend straight away. Add your gross margin, the share of revenue left after the cost of the product and delivery, and it also tells you whether that ROAS is actually profitable. Everything updates as you type, and nothing you enter leaves your browser.
The ROAS formula
ROAS is revenue divided by ad spend. A ROAS of 4x, or 400%, means every $1 of advertising brought back $4 in sales.
ROAS = revenue from ads / ad spend
Break-even ROAS = 1 / gross margin
Profit after ad spend = revenue x gross margin - ad spendThe break-even line is the part most people skip. At a 40% margin, you keep $0.40 of every sales dollar before advertising, so you need $2.50 of revenue for every $1 of ads just to stand still. That is a break-even ROAS of 2.5x. Anything above it is profit, anything below it is a loss, however good the ROAS looks on a dashboard.
A worked example
An online shop spends $1,250 on ads and records $5,000 in sales from them. Its ROAS is 4x. With a 40% margin, those sales leave $2,000 after product costs, and $750 after the ads are paid. The same 4x ROAS at a 20% margin would lose $250, because the break-even point rises to 5x. The numbers are an illustration; plug in your own to see where you stand.
| Gross margin | Break-even ROAS | Target ROAS (10% profit) |
|---|---|---|
| 20% | 5.0x | 10.0x |
| 30% | 3.3x | 5.0x |
| 40% | 2.5x | 3.3x |
| 50% | 2.0x | 2.5x |
| 60% | 1.7x | 2.0x |
| 80% | 1.3x | 1.4x |
Target ROAS: the ROAS your profit goal needs
Break-even ROAS tells you where a campaign stops losing money. Target ROAS goes one step further and tells you the ROAS you need to keep a set share of revenue as profit after product costs and ads.
Target ROAS = 1 / (gross margin - profit share you want to keep)With a 40% margin and a goal of keeping 10% of revenue as profit, the target ROAS is 1 / (0.40 - 0.10) = 3.3x. At a 50% margin the same goal needs only 2.5x. If your profit goal is as large as your margin, no ROAS can reach it, and the calculator shows a dash. Smart bidding tools in ad platforms use the same idea: you give them a target, and they bid for it.
How to raise your ROAS
- Cut the cost of each sale: pay for results instead of impressions, drop countries and placements that never convert, and fix the landing page before you buy more traffic.
- Raise the value of each sale with bundles, upsells, and a clear offer on the first order.
- Count repeat purchases. A first-order ROAS below break-even can still be a good deal when customers come back, which is where customer lifetime value comes in.
Paying per confirmed conversion makes ROAS easier to control, because your cost per conversion is fixed before you spend a cent. Pay only for approved results explains how that works on Moonetix.
Frequently asked questions
What is a good ROAS?
One above your break-even ROAS, which depends on your margin. A 3x ROAS is healthy at a 50% margin and a loss at a 25% margin. Work out your break-even first, then set a target a little above it.
How do I calculate break-even ROAS?
Divide 1 by your gross margin as a decimal. At a 40% margin, 1 / 0.4 = 2.5, so you need a ROAS of 2.5x to cover product costs and ad spend.
What is the difference between ROAS and ROI?
ROAS compares revenue with ad spend only. ROI compares profit with what you spent, so it accounts for product costs. A campaign can have a high ROAS and a negative ROI when margins are thin.
How do I calculate target ROAS?
Divide 1 by your gross margin minus the share of revenue you want to keep as profit. At a 40% margin and a 10% profit goal, that is 1 / 0.30 = 3.3x, so every $1 of ads must bring in about $3.30 of sales.
Is a ROAS of 2 good?
It breaks even at a 50% margin and makes a profit above it. Below a 50% margin, a 2x ROAS loses money on the first order.