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Marketers can't ignore Return on Ad Spend (ROAS). It is at the center of almost every performance dashboard and helps people make choices about budgets, testing new ideas, and expanding campaigns. It seems simple at first: how much money do you make for every dollar you spend on advertising? But anyone who has run big campaigns knows that the story is more complicated.
We've seen brands throw parties for record-breaking ROAS numbers, only to find out that they weren't as profitable as they thought. We've also seen teams freak out when ROAS went down, even though other measures of efficiency showed that things were getting better. What did you learn? ROAS is a useful tool, but only if we know how to use it correctly, understand what it means in context, and combine it with the right supporting metrics.
At its most basic level, ROAS shows how well something works.
Return on Ad Spend (ROAS) is a way to figure out how much money advertising makes compared to how much money was spent on it. It seems easy at first: spend $10,000 on ads, make $40,000 in sales, and you have a 4x ROAS, which means you made four dollars for every dollar you spent.
That neat formula is why ROAS became such a cornerstone in digital advertising. But anyone who has tried to calculate it in a real-world business context knows it isn’t always that straightforward. The stumbling block usually comes down to how “revenue” is defined.
Should revenue be gross sales before any deductions, or net sales after subtracting discounts, coupons, or loyalty credits? Do you count taxes and shipping, which technically pass through the business but aren’t true margin? What about refunds? Do they get deducted immediately, or tracked separately? These details can swing the number dramatically.
We’ve sat with teams reviewing the exact same campaign who reported different outcomes simply because of how they handled those inputs. One group claimed a 4.2x ROAS, another insisted it was closer to 3.1x. Neither was lying, but the lack of alignment created confusion.
This is why the formula itself matters less than the definitions behind it. The calculation is always revenue divided by ad spend. What really determines whether ROAS is useful is whether your organization applies that formula consistently. Without a shared standard, you end up with a number that looks authoritative on a dashboard but falls apart under scrutiny.
Consistency is what makes ROAS valuable as a comparison tool. If every team in the company defines revenue the same way, then a 3x ROAS this month compared to a 4x last month tells a meaningful story. If definitions shift from gross to net halfway through the year, you’re comparing apples to oranges, and that undermines the metric’s credibility.
ROAS = Revenue from Ads ÷ Advertising Costs
The ROAS is 4x if a campaign costs $5,000 and brings in $20,000 in attributed revenue. The division is easy, but figuring out who is responsible is hard.
There isn't always a clear path from click to buy in digital advertising. A person might see an ad for a brand on Instagram, look it up on Google, and then buy it days later on Amazon. Based on your attribution model, that $200 sale could be fully credited to the Meta campaign, split between channels, or not counted at all.
Meta's default one-day view and seven-day click model gives different results than Google Analytics, third-party attribution platforms, or surveys that ask customers how they found out about a product after they bought it. Because of a change in attribution settings, we've seen brands go from celebrating record-breaking ROAS to completely changing their strategy.
One DTC fashion brand we worked with shows how dangerous it is. They put $50,000 into both Meta and Google. Ads Manager said it made $200,000 in revenue, which was a 4x return on ad spend (ROAS). But when the team took into account $20,000 in returns and $15,000 in discounts, the real number was closer to 3.3x. They could have scaled campaigns based on false numbers without looking into them more closely, which would have put their profits at risk.
Marketers love benchmarks. They're easy to understand, easy to share, and they help you see if performance is good or bad. But when it comes to ROAS, it's not always clear what "good" means.
We think that the right ROAS target depends almost entirely on how much it costs to make a unit and how customers behave. A SaaS company with high margins and steady income might need a 3–5x ROAS to support rapid growth. A CPG brand that sells cheap items with a lot of repeat customers could do well at 1.5–2x because retention makes up for the difference. Even though the top line number may seem low compared to other verticals, a luxury brand with an average order value of $500 and 80% margins may be perfectly healthy at 2x.
Let’s look at some examples of what other experts in the field think is a “good” ROAS. Shopify says that ecommerce brands usually fall between 2x and 4x. BigCommerce says that the bottom line is what really matters, not the actual number, and we agree.
We’ve seen this happen with clients in a lot of different areas. For one fashion brand, hitting 3x was a sign that it was time to grow because the margins were good and the lifetime value was high. For another with smaller margins, we told them to stop campaigns that went below 4x. Both teams were “right” because their business models needed different levels of efficiency.
That's why we tell teams to start at the end. Your average order value and gross margin should be the first things you look at. You make $30 for each order if your AOV is $50 and your margin is 60%. At 1x ROAS, you are not losing money. You make $30 on each order at 2x. At 4x, you make $90. When you do the math, "good" stops being a vague industry average and becomes a number that is specific to your business model.
The takeaway: don't base your expectations on just one standard. A good ROAS is one that fits with your unit economics and helps your business grow in a way that makes money.
People often talk about ROAS and MER together, but they answer different questions. ROAS looks at how well a campaign or channel works. It wants to know how much money we made back for every dollar we spent here. MER, or Marketing Efficiency Ratio, steps back and looks at the entire system. It compares total revenue against total marketing spend, no matter which channel or campaign gets the credit.
One way to think about the difference is through perspective. ROAS is the microscope. It lets us zoom in on individual campaigns and spot which ones are pulling their weight. MER is the telescope. It shows us whether the entire marketing program is sustainable when all the moving parts are included.
This difference is important because ROAS can sometimes make performance seem better than it really is. A single campaign might show a strong 3x return, but when you look at how much money you spend on marketing across all channels, MER might be closer to 1.8x. That broader lens tells a more sobering story.
We have found that the most effective teams do not choose between the two. They use ROAS for tactical decisions such as pausing, scaling, and optimizing campaigns day to day, while tracking MER to keep the company aligned on overall profitability. When both metrics are viewed side by side, marketing leaders can see not only which ads are working but also whether growth as a whole is efficient.
ROAS and ACoS are two sides of the same coin. Both measure the efficiency of ad spend, but they frame the math differently. ROAS divides revenue by ad spend, while ACoS divides ad spend by revenue. In practical terms, a 4x ROAS is equal to a 25 percent ACoS.
ACoS is most often used in the Amazon ecosystem. Marketplace sellers pay close attention to it because margins are already tight, and a few percentage points can be the difference between profit and loss. If ad spend rises above a certain share of revenue, the business model quickly becomes unsustainable.
Outside of Amazon and similar marketplaces, marketers usually default to ROAS. It feels more intuitive to say “we earned four dollars for every one spent” rather than “our ad spend is 25 percent of revenue.” The insight is the same, but the language speaks differently depending on the environment.
What matters most is not which metric you use but how consistently you apply it. A team that flips between ROAS and ACoS without clear definitions will end up confused, even though the numbers are mathematically linked. We have found that the best approach is to choose the framing that matches your reporting context. For marketplace advertising, ACoS is often the clearest measure. For broader multichannel campaigns, ROAS tends to be more practical.
ROAS seems definite because it's easy to understand and figure out. That simplicity is also a flaw. When brands only use ROAS to measure how well their marketing works, they run the risk of making plans based on numbers that look good but don't tell the whole story.
One of the biggest things people don't see is the potential for growth. Retargeting warm audiences often leads to high ROAS because they naturally convert at higher rates. You might be able to keep your efficiency high in the short term by only scaling those campaigns, but you won't get any new customers. We've seen businesses celebrate a quarter with a 6x ROAS, only to find out that the funnel was drying up and overall revenue growth had stopped.
It can also give leaders a false sense of security, which is another problem. A high ROAS number on a dashboard might make executives think that marketing is working well, even if other parts of the business aren't doing well. ROAS can hide real problems until it's too late if you don't pay attention to rising fulfillment costs, falling repeat purchase rates, or longer payback periods.
Most importantly, ROAS does not measure how much more business you get. Just because an ad gets credit for a sale doesn't mean it made the sale. Brands risk paying for conversions that might have happened anyway if they don't test for incrementality. This is especially true on platforms that do a lot of retargeting, where ads often follow people who are already interested in buying.
You should use ROAS as a base. It can be a good sign of how well a campaign is doing, but you should also look at other metrics like CAC, LTV, contribution margin, and incrementality testing. When we look at performance in this bigger way, we can see more clearly if marketing is really helping the business grow in a way that will last, instead of just making the numbers look good on a spreadsheet.
Changing bids or ad formats is not usually the best way to improve ROAS. Building stronger foundations upstream gives you the most benefits. When we look at accounts that consistently outperform benchmarks, the difference is almost always in how well the fundamentals are handled.
The first place to start is product data. A poor-quality feed undermines performance before a single impression is served. Titles that do not match search intent, images that fail to capture attention, or categories that are misaligned with platform requirements all reduce efficiency. We have seen campaigns swing by entire percentage points in ROAS after cleaning up product feeds. Investing in feed management tools such as Marpipe’s feed optimization solution creates a base that campaigns can actually build on.
Creative is the second lever. Catalog and dynamic ads depend heavily on visuals, yet many brands recycle the same templates for months. We have worked with teams that doubled their click-through rates simply by testing new layouts and updating product photography. Creative variety not only lifts engagement but also gives algorithms more room to optimize delivery.
Audience strategy is another factor. Retargeting will almost always deliver higher ROAS, but relying on it too heavily caps growth. The healthiest accounts maintain a balance between retargeting and prospecting. Retargeting drives efficiency, while prospecting brings in new customers who fuel lifetime value. The right ratio depends on business goals, but leaning too far in either direction will distort performance.
Lastly, we can't forget about the importance of landing pages and checkout flows. No matter how well-optimized the campaign is, a slow site or a bad user experience will kill ROAS. We often remind teams that advertising can only amplify what already exists. If the website cannot convert, pouring more spend into ads will not change the outcome.
When we put these elements together (clean feeds, compelling creative, smart segmentation, and seamless site experience) we see ROAS improvements that last. We want you to strengthen the infrastructure so that every dollar spent works harder across the system.
ROAS is just one part of the bigger picture. If you only look at it in isolation, you might end up optimizing for efficiency in a small part of the customer journey without checking to see if the business is growing in a way that is both profitable and long-lasting.
This is something we've seen happen many times. A brand with a 2x ROAS might seem weak next to a competitor with a 4x ROAS, but if the first brand has better margins and keeps more customers, it is often in a better position. On the other hand, a business that is celebrating a 6x ROAS might really be losing money when you take into account costs and churn. If you only look at ROAS, you won't see those things.
Leaders also make decisions differently when they go beyond ROAS. The question changes from "How can we raise ROAS this quarter?" to "How can we build a marketing system that works well for the next year and beyond?" That way of thinking changes marketing from trying to get quick wins to working toward long-term growth.
When ROAS is seen as a data point in a larger efficiency framework rather than the end goal, marketing works better. When CAC, LTV, MER, and margin analysis are on the same dashboard as ROAS, teams stop looking at vanity numbers and start working toward long-term growth.
ROAS is helpful, but it doesn't tell the whole story. What matters is how brands use it with other signals to make better choices and build growth that lasts.
That's exactly what we do at Marpipe. We give teams the tools they need to consistently beat benchmarks by providing clean product feeds, scalable creative, and automation that is built for performance. Get started with Marpipe today if you want to stop chasing ROAS and start building marketing systems that can grow.
