What ROAS does not tell you
ROAS is based on revenue, not margin. That is its fundamental limitation: it ignores the cost of goods sold, logistics, returns, and payment fees.
In practice, for a business with a 25% gross margin, a ROAS of 4 is roughly break-even: revenue covers the cost of the products and the ad spend, with nothing left over. For a business with a 70% margin, the same ROAS of 4 is highly profitable. The same number describes two opposite situations.
That is why there is no such thing as a “good ROAS” in absolute terms. The only threshold that means anything is your break-even point, which you derive from your margin: as a first approximation, break-even ROAS equals 1 divided by the gross margin rate.
Calculate break-even ROAS before any budget decision
With a 25% gross margin, break-even ROAS is 4. At 50%, it drops to 2. At 70%, to about 1.43. Until that number is pinned down, no budget allocation decision is well-founded.
This calculation remains an approximation: it does not account for fixed costs, returns, or customer lifetime value. It gives you a floor, not a target.
For businesses with repeat purchases, first-order ROAS structurally underestimates profitability: it ignores subsequent orders. Thinking in terms of customer lifetime value then changes the trade-off completely.
The attributed ROAS trap
The ROAS reported by an ad platform is an attributed ROAS: the platform credits itself with the conversions it believes it caused. Adding up the ROAS of several platforms therefore shows more revenue than was actually made: the same sale is counted more than once.
The second bias runs deeper: some of the attributed sales would have happened without advertising. This is especially true of brand campaigns, where you pay for customers who were coming anyway.
The only measure that truly answers the question “did this spend create value?” is incrementality, which is measured with lift tests, not with a platform report.
Frequently asked questions
What is a good ROAS?
There is no universal value: a good ROAS is one above your break-even point, which depends on your margin. At a 25% gross margin, break-even is around 4; at 50%, around 2. A ROAS of 3 can therefore be excellent or loss-making, depending on the business.
How do you calculate ROAS?
Divide the revenue generated by the ad spend, over the same period and the same scope. The hard part is not the division but agreeing on which revenue to use: the figure attributed by the platform, or the one recorded in your back office.
What is the difference between ROAS and ROI?
ROAS compares revenue with ad spend alone. ROI compares profit with all the costs incurred. ROAS is simpler to calculate and easier to misread, because it ignores margin.
Why does my platform's ROAS differ from my back-office figures?
Because the platform counts the conversions it attributes to itself, over its own attribution window, and some real conversions never reach it (browser blocking, declined consent, transmission losses). A gap is normal; a gap that suddenly widens signals a measurement failure.