A 4:1 ROAS sounds great — until you learn your margins mean you needed 5:1 just to break even. Here's how to judge it properly.
Return on ad spend measures how much revenue each advertising dollar generates. It's the headline efficiency metric for paid marketing on Google, Meta, and every other ad platform.
ROAS = Revenue from Ads ÷ Ad Spend. Spend $2,000 and generate $8,000 and your ROAS is 4.0, often written 4:1 or 400% — four dollars of revenue per ad dollar.
A high ROAS isn't automatically profitable. If your product margin is 50%, you keep only half of each revenue dollar, so you need a ROAS above 2.0 just to break even. Break-even ROAS = 1 ÷ Profit Margin: at a 25% margin it climbs to 4.0.
Always compare your ROAS to your break-even ROAS, not to a generic target. The right number is set by your margins.
A 4:1 ROAS is a common ecommerce rule of thumb, but it depends entirely on margins. A high-margin software business can thrive at 2:1, while a low-margin retailer may need 6:1 or more. Define your break-even first, then set a target comfortably above it.
ROAS measures revenue per ad dollar; ROI measures profit relative to total cost. ROAS is easier to track per campaign, but ROI (or profit on ad spend) gives the truer picture of whether you actually made money.