How to calculate ROAS: a worked example
A made-up example. An online shoe brand spends ₹50,000 on Instagram ads in a month. The orders tracked to those ads add up to ₹2,00,000. ROAS = ₹2,00,000 ÷ ₹50,000 = 4.
Use the same rupee amounts on both sides. If your ad platform adds tax to your bill, count what you actually paid.
What is a good ROAS?
There is no single good number, and anyone who quotes one without asking your margin is guessing. Work out your own break-even ROAS first:
Break-even ROAS = 1 ÷ gross margin
If you keep 40% of each sale after product and delivery costs, your break-even ROAS is 1 ÷ 0.40 = 2.5. Below 2.5 you lose money on every ad-driven sale. Above it, you make some. A brand with a 70% margin breaks even at about 1.4, so the same ROAS of 2.5 is healthy for one business and a loss for another.
It's the first sum worth doing before you judge any campaign. Next, see how performance marketing is planned around it.
ROAS vs ROI: what's the difference?
- ROAS only compares sales with ad spend.
- ROI (return on investment) compares profit with every cost: product, delivery, staff, agency fees and the ads.
- So ROAS tells you whether the ads are pulling their weight. ROI tells you whether the business made money.
Why platform ROAS and your bank account don't match
Google and Meta each count a sale if their ad played a part, so the same order can be claimed by both. Returns and cancelled orders often still count. So we check platform ROAS against the business's own sales record before deciding where the next rupee goes.
ROAS for lead businesses (business-to-business or B2B, industrial, education)
If your sale happens offline, after a call or a site visit, the ad platform never sees the revenue. Track cost per lead first, then match closed deals in your own records back to the campaign that brought them. It takes a few months of data, but it's the only honest ROAS for a business that sells through a sales team. Our lead generation page explains how we set this up.
Related terms
- CPC (cost per click): what you pay each time someone clicks your ad.
- CPM (cost per mille): what you pay for 1,000 ad views.
- Conversion rate: the share of visitors who buy or enquire.
- CTR (click-through rate): the share of people who see your ad and click it.
- Target ROAS: a Google Ads bid strategy that aims for the ROAS you set.
Want to see the bids and budgets behind it? Read about our Google Ads and Meta ads work.
