How to calculate return on ad spend (ROAS)
Return on ad spend is revenue divided by the advertising that produced it. Spend ₹2,00,000 and get ₹8,00,000 back and your ROAS is 4:1 — four rupees of revenue for every rupee of media. It is the fastest way to see whether a campaign is pulling its weight, and the easiest number in paid media to misread.
The misreading is always the same. ROAS counts revenue, not profit. It knows nothing about your cost of goods, your shipping, your returns or your payment fees. A 4:1 ROAS on a product with a 20% margin is losing money on every order, and the dashboard will report it in green the whole time.
The ROAS formula, and what it leaves out
ROAS = revenue attributed to ads ÷ ad spend. Both halves need care. Revenue should be what the ads actually caused, not everything the store took while the ads happened to be running — brand search in particular will flatter any campaign allowed to claim it. Spend should include management fees and creative costs if you want the figure to mean anything at board level.
What it leaves out is margin, and that omission is the whole game. The useful companion number is break-even ROAS: 1 ÷ your gross margin. At a 30% margin you break even at roughly 3.3:1, so a 3:1 campaign is quietly underwater however healthy it looks against a generic benchmark.
A homeware brand spends ₹2,00,000 and books ₹8,00,000 of attributed revenue:
₹8,00,000 ÷ ₹2,00,000 = 4:1 ROAS. On a 45% margin that is comfortably profitable. On a 22% margin, break-even is 4.5:1 — the same campaign is losing money on every sale.
What is a good ROAS?
Three to four to one is the range most ecommerce accounts are held to, and it is a reasonable starting point when you have nothing else. But the only target that is actually yours is the one your margin sets. Work out break-even first, then decide how much profit you want the campaign to make on top of it.
- Under 1:1 — you are paying more for revenue than the revenue is worth. Stop and diagnose before spending another day.
- Between 1:1 and break-even — revenue is growing and profit is shrinking. The most common place for an account to sit without anyone noticing.
- At 3:1 to 4:1 on a healthy margin — a normal, scalable position.
- Above 8:1 — usually a sign of under-spending, or of brand traffic being counted as acquisition.
ROAS benchmarks by channel
Different channels do different jobs, and holding them all to one number ends with the channels that create demand being switched off by the channels that harvest it. Judge each against its own role.
| Channel | Typical ROAS | What it is actually doing |
|---|---|---|
| Brand search | 8:1 and above | Harvesting demand you already created |
| Shopping and Performance Max | 3:1 to 6:1 | Catching buyers at the comparison stage |
| Prospecting social and video | 1:1 to 2.5:1 | Creating the demand the others harvest |
How to improve ROAS
Almost every real ROAS improvement comes from one of three places, and none of them is bidding. Remove waste first: search terms that never convert, placements that inflate impressions, products in the feed that cannot be sold profitably at any volume. Then improve the page, because a conversion rate that goes from 1.5% to 2.5% raises ROAS by two thirds without touching a single bid.
Only then work on the spend itself — moving budget toward the campaigns and hours that convert, and separating brand from prospecting so that the numbers stay honest. If you want a second pair of eyes on which of the three is costing you most, that is exactly what a Google Ads account audit is for, and you keep the findings either way.