What is ROAS

What ROAS measures and what it leaves out

ROAS is revenue attributed to a campaign divided by the cost of that campaign. Google Ads writes it as a percentage: 5 dollars in sales divided by 1 dollar in ad spend gives a 500 percent target ROAS. Most ecommerce teams say it as a multiple instead, so the same number is a 5x.

One cost in, one revenue out.

The word return covers one cost only. ROAS counts the ad spend and nothing else. Return on investment includes the total cost of a campaign, the software, design and distribution around it, while ROAS isolates the direct ad spend. Neither of them counts what the product cost you.

Why two tools report different ROAS for the same spend

The formula is arithmetic and the arithmetic is not where the disagreement comes from. The numerator is a number some tool decided to attribute to your ads, using a window you chose and a model it chose, and different tools make different decisions.

The numerator is a decision, not a count.

Start with the window. Google Ads records a conversion for a set period after the ad interaction, and that period is a setting.

The setting that decides how much revenue lands in the numerator

1. 1A conversion window is a period, and the page says it is editable per conversion action. So it is a decision, not a measurement.
2. 2The example on the page runs the arithmetic in the other direction: shorten the window to seven days and conversions that happen later stop appearing in the report.
3. 3The default is thirty days after a click. Two accounts with different windows produce different ROAS from identical spend and identical orders.

Then the model. Shopify’s marketing reports default to last click, giving all the credit to the last channel the customer touched, with a 30-day lookback. Google Ads has its own attribution model, and it works with the values your own conversion tracking sends. Its Target ROAS documentation says the platform predicts future conversions and values using the conversion values you report. So the numerator on one screen begins in your tag setup, and the numerator on the other begins in Shopify’s. If the value being sent is itself a rate, not an order total, then what a conversion rate is decides the number before any attribution runs.

One more setting to check before you compare two months: Google states that changing a conversion window applies to conversions going forward and does not recount the ones already recorded. A window change is therefore a break in the series, not a restatement of it.

What counts as a good ROAS?

People ask this four different ways and get the same answer back. The benchmark in circulation is 4 to 1, and the threshold it is standing in for moves with a number that is different for every store.

Break-even ROAS is one divided by your gross margin.

One glossary states the 4 to 1 figure and cites no sample for it. A sample could exist; what it could not be is right for every store.

The reasoning is one step. ROAS has not paid for the goods. If your gross margin is 40 percent, every 2.50 of revenue leaves 1.00 of gross profit, so 2.50 of revenue per 1.00 of ad spend is exactly break-even. Below it you are buying orders at a loss.

Reading the other three questions off the same table

That table also answers the other three questions in the box. A ROAS of 1 returns exactly the spend and has paid for none of the goods, so it is a loss everywhere. A 2.5 is break-even at a 40 percent margin, below the floor at 30 and clear of it at 50. A 5x means five dollars of revenue per dollar spent, and whether that is good is the same question again.

Why ROAS is not profitability

The first mix up is treating ROAS as though it were a profit measure. It is a revenue measure with one cost subtracted. Ad spend is rarely the biggest thing standing between revenue and profit. Goods, shipping, payment fees and returns all sit outside it.

A rising ROAS can arrive with falling profit. Move budget onto a product that looks efficient and sells at a thin margin, and the ratio improves while the contribution does not.

The second is the bidding strategy with the same name. Target ROAS in Google Ads is an automated bidding strategy, not a report, and it has entry requirements. Google lists at least 15 conversions in the past 30 days for Search and Shopping, and at least 50 in 35 days for Demand Gen. Below those thresholds it is not a target you have chosen, it is a strategy that has too little to learn from.

Which is the same trap how Google Ads works sets in a different place: the number you type is an input to a system, not an instruction to it.

Where to read the rest

That is the term and the threshold. How the price of each click is decided, and why Google publishes six inputs and your bid is one of them, is our guide to how Google Ads works.

One rule from it belongs here: what you pay is not what you bid.

If the constraint turns out to be the site and not the auction, the cheaper fix sits on the other side of the click. What a visit is worth is where that gets measured, the subject of conversion rate optimization.

Work out your gross margin on your best-selling product, divide one by it, and compare the answer to the ROAS your ad account is reporting. The two cover different ground, one product against every campaign, so read a shortfall as a question, not a verdict: either the account is buying orders at a loss, or the mix is carrying products whose margins are better than your best seller’s. Both are worth finding out, and the campaign-level version of the same division is the one that settles it.

Suppose your account is running under that break-even line: fixing it is our PPC management service.