Glossary

What is ROAS (return on ad spend)?

ROAS is revenue generated by a campaign divided by the amount spent on it, usually expressed as a ratio or a multiple. A ROAS of 4 means £4 of revenue per £1 spent.

Pricing and return

All 220 terms

How to calculate it, and what it omits

Campaign revenue divided by campaign spend. The simplicity is the appeal and the problem.

ROAS is a revenue ratio, not a profitability ratio. It ignores cost of goods, fulfilment, returns, payment processing, support and every fixed cost in the business. A 4x ROAS is excellent at an 80% gross margin and loss-making at 20%.

The number that answers the profitability question is ROI, or a margin-adjusted ROAS computed against contribution rather than revenue. Reporting raw ROAS to people making budget decisions is how businesses scale unprofitable channels confidently.

Attributed ROAS versus incremental ROAS

Almost every reported ROAS is attributed: revenue that an attribution model assigned to the campaign. That is not the revenue the campaign caused.

The gap is largest exactly where the reported number looks best. Retargeting posts spectacular attributed ROAS because it reaches people already about to buy; held out, much of that revenue turns out to have been coming anyway. Incremental ROAS — revenue that would not have existed — is the number that should drive budget, and it is only available from an incrementality test.

Attributed ROAS for operational tuning inside a channel.
Incremental ROAS for deciding how much a channel should get.
Margin-adjusted in both cases, or the ratio is not about profit.

ROAS and AI media

The bias runs the opposite way here, and this catches buyers out. Attributed ROAS on AI channels is usually too *low*, not too high, because so much influence arrives without a click and lands in direct or organic.

A buyer applying a standard ROAS threshold to attributed AI numbers will shut down a channel that is working. The correction is the same instrument in both directions — measure lift rather than attribution — but the direction of the error is worth knowing before you read the first report.

Common questions

What is a good ROAS?

It depends entirely on gross margin. At 70% margin, breakeven is roughly 1.4x; at 30% it is over 3x. A target quoted without a margin attached is not a target.

Should ROAS include organic revenue?

Not in campaign ROAS. But a channel that lifts total revenue including organic is doing something a campaign-level ROAS cannot see, which is exactly what an incrementality test measures.

More in pricing and return

What a campaign costs to run, and what it gives back.

Back to the glossary