What is ROAS and how do you read it?
ROAS is a performance marketing metric that measures the direct return of ad investment. The formula is simple: ROAS = Ad Revenue / Ad Spend. A 4x ROAS means every $1 spent produces $4 of revenue. It is the primary optimisation target on Meta Ads, Google Ads and LinkedIn Ads.
Because ROAS is measured on revenue, it doesn't guarantee profit. With product cost, shipping, refund rate and operating costs factored in, break-even ROAS is different for every business. For example, an e-commerce brand with 30% gross margin needs roughly 3.33x break-even ROAS — any campaign below that is losing money. That's why ROAS should be tracked alongside POAS (Profit on Ad Spend).
The best ways to improve ROAS: tighten audience targeting, rotate creatives faster, lift landing page conversion rate and move bidding strategies to value-based models.
ROAS formula with an example
ROAS = Ad revenue / Ad spend. Spend $25,000 and generate $100,000 of revenue (excluding VAT/sales tax and refunds) and ROAS is 4. Break-even ROAS = 1 / margin: at a 30% contribution margin it is 3.33, so a 4 ROAS is profitable — profit after ads = 100,000 × 0.30 − 25,000 = $5,000. Target ROAS = 1 / (margin − target profit share): to keep 10% of revenue as profit at a 30% margin you need 1 / 0.20 = 5.
Gross ROAS vs net ROAS vs profit ROAS (POAS)
Gross ROAS is the ratio ad platforms report: total attributed revenue, often including tax and later-refunded orders, divided by spend. Net ROAS uses revenue after tax and refunds and is the version to manage the business on. Profit ROAS, also called POAS, divides the gross profit generated by ads by spend (POAS = revenue × margin / spend); 1.0 is break-even, so it can be read without knowing the margin. A campaign with 4 gross ROAS can have about 3.3 net ROAS after 20% VAT and refunds, and 1.0 POAS at a 30% margin — exactly break-even.