ROAS Explained: Return on Ad Spend for Non-Marketers
If you’re spending money on Google Ads, Facebook Ads, or any form of paid advertising, there’s one number you need to understand: ROAS — Return on Ad Spend.
ROAS tells you how much revenue you earn for every pound you spend on advertising. It’s the simplest, most direct measure of whether your advertising is making money or losing it.
And yet, a surprising number of business owners spending thousands per month on ads have no idea what their ROAS is. Let’s fix that.
The Basic Formula
ROAS = Revenue from ads ÷ Cost of ads
That’s it. No complexity.
Example: You spend £1,000 on Google Ads this month. Those ads generate £5,000 in revenue.
ROAS = £5,000 ÷ £1,000 = 5.0 (or 5:1, or 500%)
For every £1 you spent on advertising, you earned £5 back. That’s a healthy return.
Another example: You spend £2,000 on Facebook Ads. They generate £2,400 in revenue.
ROAS = £2,400 ÷ £2,000 = 1.2 (or 1.2:1, or 120%)
For every £1 spent, you got £1.20 back. Before you celebrate, remember: ROAS doesn’t account for the cost of goods, overheads, or agency fees. A ROAS of 1.2 almost certainly means you’re losing money.
ROAS vs ROI: What’s the Difference?
People mix these up constantly.
ROAS measures the direct return on your advertising spend only. It’s a top-line metric — revenue divided by ad cost.
ROI measures the total return on your entire marketing investment, including ad spend, agency fees, tool costs, staff time, and cost of goods.
Example:
- Ad spend: £1,000
- Revenue from ads: £5,000
- ROAS: 5.0 ✅
But factor in:
- Cost of goods: £2,000
- Agency management fee: £500
- Staff time managing campaigns: £300
Total cost: £3,800 Profit: £1,200 ROI: (£1,200 ÷ £3,800) × 100 = 31.6%
ROAS paints an incomplete picture on its own. A ROAS of 5.0 looks great, but if your margins are thin and your overhead is high, the actual profit might be modest. Always consider ROAS in the context of your business costs.
For a more comprehensive approach to measuring marketing profitability, read our marketing ROI guide.
What’s a “Good” ROAS?
This depends entirely on your business model. Here are benchmarks by type:
E-commerce
- Target ROAS: 4:1 or higher (£4 revenue per £1 ad spend)
- Minimum viable: 3:1 (below this, you’re probably losing money after costs)
- Excellent: 6:1+ (strong product-market fit and well-optimised campaigns)
Why these numbers: E-commerce businesses typically have cost of goods, shipping, returns, and platform fees that eat into revenue. A ROAS of 4:1 usually means you’re profitable after all those costs. Below 3:1, margins evaporate.
Lead Generation (B2B / Services)
ROAS is trickier for lead gen because you don’t get immediate revenue from an ad click. Instead, calculate using average lead values:
Cost per lead × conversion rate × average customer value = Revenue per ad spend
Example:
- Ad spend: £1,000
- Leads generated: 20 (cost per lead: £50)
- Lead-to-customer conversion rate: 25%
- Customers acquired: 5
- Average customer value: £3,000
- Revenue: £15,000
- Effective ROAS: 15:1
The key insight for service businesses: Your ROAS can look terrible if you only measure first-month revenue, but brilliant when you factor in customer lifetime value. A client who costs £200 to acquire but spends £10,000 over 2 years is an exceptional return.
Local Businesses
- Target ROAS: 5:1 or higher (local ads tend to be cheaper, so the bar is higher)
- Track both online and offline conversions — someone might click your ad and then call you. Without call tracking, you’ll undercount your returns.
How to Track ROAS
For Google Ads
Google Ads calculates ROAS automatically if you have conversion tracking and conversion values set up.
Setup:
- Install conversion tracking (forms, calls, purchases)
- Assign a value to each conversion type
- View ROAS in the Campaigns tab → add “Conv. value/cost” column
Important: Assign realistic conversion values. If a form submission is worth an average of £500 (based on your lead-to-sale rate and average deal size), set that as the value. Don’t guess — use real data from the past 6-12 months.
For Facebook/Meta Ads
Meta Ads Manager shows ROAS if you have the Meta Pixel installed with purchase or conversion events.
Setup:
- Install Meta Pixel on your website
- Set up conversion events (Purchase, Lead, etc.)
- Assign values to events
- View ROAS in Ads Manager under “Purchase ROAS” or “Website purchase ROAS”
For more on Facebook Ads metrics, read our Facebook Ads reporting guide.
For All Channels Combined
Use a marketing dashboard or spreadsheet that pulls together spend and revenue from all platforms.
Simple monthly tracking:
| Channel | Monthly Spend | Revenue | ROAS |
|---|---|---|---|
| Google Ads | £1,200 | £6,000 | 5.0 |
| Facebook Ads | £800 | £2,400 | 3.0 |
| LinkedIn Ads | £500 | £1,000 | 2.0 |
| Total | £2,500 | £9,400 | 3.8 |
This tells you immediately where to invest more (Google Ads, with its 5.0 ROAS) and what to investigate or cut (LinkedIn Ads, barely breaking even).
For automating this, see our guide on building a marketing dashboard.
Common ROAS Mistakes
Mistake 1: Measuring ROAS Without Conversion Tracking
If your conversion tracking isn’t set up properly, your ROAS data is fiction. Garbage in, garbage out. This is the single most common issue I see in Google Ads accounts.
Mistake 2: Ignoring the Attribution Window
Google and Facebook have different default attribution windows (the time between someone clicking an ad and converting). Google Ads default is 30 days click-through. Facebook default is 7 days click, 1 day view.
This means the same conversion might be counted differently by each platform. Be aware of your attribution settings and compare like for like.
Mistake 3: Counting Revenue That Isn’t From Ads
If someone was going to buy from you anyway (returning customer, direct search for your brand name) but happened to click a Google Ad first, your ROAS is inflated. Brand campaigns often have absurdly high ROAS for this reason — they’re capturing existing demand, not creating it.
Fix: Separate branded and non-branded campaign ROAS. Non-branded ROAS is the truer measure of your advertising effectiveness.
Mistake 4: Optimising for ROAS Alone
A campaign with a ROAS of 10:1 spending £100/month is less valuable to your business than a campaign with a ROAS of 4:1 spending £5,000/month. The second generates far more total profit.
Track both ROAS and total profit. Sometimes reducing your ROAS target allows you to scale spend and increase overall profit significantly.
Mistake 5: Comparing ROAS Across Different Business Types
A SaaS company with 90% margins needs a very different ROAS than a retailer with 30% margins. Don’t benchmark against unrelated industries — benchmark against your own historical performance and your known breakeven point.
Calculating Your Breakeven ROAS
Every business has a breakeven ROAS — the point where advertising revenue exactly covers all costs. Below this, you’re losing money.
Formula:
Breakeven ROAS = 1 ÷ Profit Margin
Example:
- If your profit margin is 50%: Breakeven ROAS = 1 ÷ 0.5 = 2.0
- If your profit margin is 33%: Breakeven ROAS = 1 ÷ 0.33 = 3.0
- If your profit margin is 25%: Breakeven ROAS = 1 ÷ 0.25 = 4.0
Your target ROAS should be at least 1.5-2x your breakeven ROAS to account for overhead, seasonality, and the campaigns that underperform.
What to Do When ROAS Is Low
If your ROAS is below target, investigate in this order:
- Check conversion tracking — Is it working? Are all conversions being captured?
- Review your targeting — Are you reaching the right people? Check search terms (Google Ads) or audience targeting (Facebook)
- Check your landing pages — Are they relevant to the ad? Do they convert well?
- Review ad quality — Are your ads compelling? Test new copy.
- Check competition — Have costs per click increased? Is the market more competitive?
- Consider the funnel — Is the problem the ads, or is it your sales process converting leads?
Want to Know Your True ROAS?
Many businesses think they know their ROAS but are using incomplete data or incorrect tracking. At Black Sheep Marketing, we audit your advertising accounts, fix your tracking, and show you the real numbers — often uncovering significant wasted spend in the process.
If you’re spending on ads but not confident in the returns, let’s find out what’s actually happening.
