Return on Ad Spend: How To Calculate Your ROAS

Return on ad spend (ROAS) measures the revenue your ads generate for every dollar you spend on them. Use it to measure social media campaigns, search ads, and other digital marketing campaigns or placements where you can attribute sales to advertising.

Advertising is a significant expense for many direct-to-consumer (DTC) brands, alongside product costs, says Andrew Faris, ecommerce consultant and founder of the agency AJF Growth. Spending ad budget efficiently has a massive impact on your profit and loss statement, he says on Shopify Masters. Setting a target ROAS can help you decide where to allocate your ad dollars.

This guide covers what ROAS is, how to calculate it, what a good ROAS looks like for your margins, and how to track and improve your advertising performance.

What is return on ad spend?

ROAS, or return on ad spend, is a marketing metric that compares the revenue an ad campaign generates with the cost of running it. A ROAS of 1 means your ads brought in exactly as much revenue as you spent. Anything above 1 means they generated more revenue than you spent on advertising.

ROAS is based on revenue, not profit. You can run a campaign with a ROAS of 3 and still lose money once you subtract the cost of the product, shipping, and payment processing. That’s why ROAS works best as one of several key performance indicators (KPIs) you read together in your marketing analytics.

You can calculate ROAS at multiple levels: across every channel (often called blended ROAS), for a single ad platform, for one marketing campaign, or even for a particular ad. A broad view, such as blended ROAS, shows how much revenue your advertising generates overall, while a narrower view shows which advertising efforts generate sales.

ROAS formula

The ROAS formula divides the revenue earned from ads by what you spent on those ads:

ROAS = Revenue from ads / Ad spend

Say you spend $1,250 on a Meta campaign in a month and the campaign drives $5,000 in sales. Your ROAS calculation looks like this:

ROAS = $5,000 / $1,250

ROAS = 4

Whether it’s written as 4, a 4-to-1 ratio, or 400%, it means you get $4 in revenue for every $1 spent. 

Ad platforms like Meta Ads Manager and Google Ads report revenue attributed to your advertising campaigns, along with ad spend. You can use those figures to calculate ROAS, although attribution methods can affect the results. 

What is a good ROAS?

What’s considered a good ROAS depends on your business and advertising channel. 

“Right now, most brands are happy to get to a 3, and that’s probably best in class,” says Sean Frank, CEO of accessories brand Ridge, discussing rising Facebook advertising costs on an episode of Shopify Masters. 

However, the return you need depends largely on your profit margins. 

For example, say you sell a sweater for $100, and it costs $60 to make, pack, ship, and process payment. That leaves $40 to cover advertising and contribute to other business expenses or profit. If you spend the full $40 on advertising to generate the $100 sale, your ROAS is 2.5: 

Break-even ROAS = $100 / $40

Break-even ROAS = 2.5

This is your break-even ROAS, or the point at which revenue from your advertising covers your product costs and ad spend, leaving no profit or loss on the sale. Stores with lower margins need a higher ROAS to break even.

How to set a target ROAS

Once you know your break-even point, you can establish a target ROAS based on your profit goals. You might aim higher to generate immediate profits or accept a lower return while investing in growth. 

For example, wool apparel brand Unbound Merino built their Meta strategy around repeat purchases. Shoppers often start with a single T-shirt, Cofounder and CEO Dan Demsky says on Shopify Masters, then “they’ll buy three T-shirts, a long sleeve, and a hoodie.” 

The brand was willing to scale advertising until first purchases broke even, counting on repeat orders to supply the profit. This strategy depends on understanding customer lifetime value, the total revenue a customer brings in across their relationship with your business. Shopify’s Customer cohort analysis reports can help you track repeat purchases and customer spending over time, giving you data to assess whether a lower initial ROAS is worthwhile. 

You can also use Shopify Audience’s advertising campaign benchmarks to compare ROAS-related metrics, such as cost per acquisition and conversion rate, against similar Shopify stores advertising on Meta. 

ROAS vs. other marketing metrics

• ROAS vs. ROI
• ROAS vs. CPA and CAC
• ROAS vs. CPC and CPL
• ROAS vs. AOV
• ROAS vs. CLV

ROAS shows how much revenue your ads generate for every dollar spent, but not what it costs to fulfill that revenue or what customers are worth over time. Reading ROAS alongside other marketing metrics gives you a fuller picture of advertising performance and profitability.

You can view several of these metrics within Shopify by visiting the Growth page in your Shopify admin. The Channel performance report shows ROAS alongside sales, sessions, average order value (AOV), cost per acquisition (CPA), conversion rate, and new versus returning customers for each marketing channel. Here’s how ROAS compares with other important metrics:

ROAS vs. ROI

Return on investment (ROI) measures an investment’s profit against its total cost. ROAS uses revenue rather than profit, and it counts only ad spend. A campaign with a strong ROAS can still show negative ROI once you include product costs, salaries, and software. 

ROAS vs. CPA and CAC

Cost per acquisition, or CPA, measures the cost of achieving an action, like a purchase or newsletter sign-up, through a marketing channel or campaign. Customer acquisition cost (CAC) is your total sales and marketing spend divided by the number of new paying customers you gained. Both measure cost in different ways, while ROAS measures the revenue generated relative to ad spend. 

ROAS vs. CPC and CPL

Cost per click (CPC) is what you pay each time someone clicks an ad, and cost per lead (CPL) is what you pay for each sign-up or inquiry. Both metrics measure ad performance earlier in the marketing funnel, but neither says how much revenue those clicks or leads produced. 

ROAS vs. AOV

Average order value (AOV) is the average amount a customer spends per order. Raising AOV can improve ROAS if it increases attributed revenue without increasing ad spend.

ROAS vs. CLV

Customer lifetime value (CLV) is the total revenue a customer generates over their relationship with your store. ROAS usually counts only the order an ad drove within its attribution window, which may not include purchases a customer makes months or years after clicking an ad. CLV helps you account for the value of those repeat purchases.

How to measure and improve ROAS

• Choose an attribution model
• Calculate your ad spend
• Compare ROAS across channels and campaigns
• Track ROAS trends over time
• Shift budget based on performance

Getting useful ROAS insights requires consistent measurement, cross-campaign comparisons, and an understanding of how performance changes over time. Here are tips for evaluating your ROAS and making more informed advertising decisions:

Choose an attribution model

Marketing attribution determines which marketing channels or touchpoints get credit for a sale. For example, a shopper might click an Instagram ad, later click a Google ad, and finally return directly to your store to purchase. Depending on the attribution model, those interactions can receive different amounts of credit, affecting revenue credited to your advertising and the ROAS you calculate.

Shopify’s marketing reports offer five attribution models. Choose one based on what you want to understand: 

• First click. Credits the customer’s first interaction, including direct visits. Use it to identify which channels generate interest in your store. 

• Last click. Credits the customer’s final interaction, including direct visits. Use it to understand which channels have the final impact on conversions. 

• Last non-direct click. Credits the last interaction that wasn’t a direct visit. This default model helps you identify the last marketing channel that influenced a sale.

• Any click. Gives full credit to each eligible interaction. Use it to evaluate individual channels or compare results with ad platforms’ attribution reports.

• Linear. Distributes credit equally across interactions, including direct visits. Use it to understand how multiple channels contribute to a purchase.

Ad platforms also use their own attribution windows, or the number of days after someone clicks or views an ad during which a sale still counts. As a result, Meta’s ROAS can differ from Shopify’s. 

Using one model as your reference and applying it consistently helps you compare campaigns and time periods on similar terms. UTM parameters are short pieces of text added to the end of a URL. Adding them to campaign links lets Shopify and tools like Google Analytics identify visits from particular campaigns.

Calculate your ad spend

Ad spend is what you pay an advertising platform to run your ads. To calculate ROAS, use the amount spent on the campaign or channel you’re measuring during the reporting period. You can find these costs in platforms such as Meta Ads Manager and Google Ads. 

Some businesses use an expanded ROAS calculation that includes additional expenses, such as creative production, staff time, and agency management fees, to assess their advertising investment more broadly. However, the standard ROAS formula looks at direct advertising spend. 

Whichever approach you use, apply it consistently when comparing campaigns. 

Compare ROAS across channels and campaigns

Comparing ROAS by channel, and then by campaign, shows which advertising efforts generate the most revenue relative to their costs and which clear your break-even ROAS. Blended ROAS gives an overall view of advertising performance, while channel-level comparisons help identify where you may need to adjust spending.

In this hypothetical example, a store with a break-even ROAS of 2.5 spends $7,000 across three ad platforms in a month:

If this brand looked only at blended ROAS, it would see a return above its break-even threshold. In reality, they’re losing money on TikTok and making up for it with Meta and Google Ads. That’s only visible by looking at ROAS by channel.

Shopify’s Channel performance report lets you compare your marketing channels and drill down into individual campaigns. 

Track ROAS trends over time

ROAS can swing from one day to the next, so weekly or monthly comparisons make patterns easier to see. Shopify’s marketing summary compares the past 30 days with the previous 30 by default. You can change both date ranges to line up with a sale or the same period a year earlier.

Look for sustained improvements or declines rather than reacting to a single day’s results. Tracking ROAS and comparing similar periods helps you distinguish long-term performance trends from temporary fluctuations caused by promotions or seasonal demand. 

Shift budget based on performance

Budget allocation means adjusting ad dollars across campaigns and channels based on their performance relative to your target ROAS. You might increase spending on campaigns that consistently exceed your target while reducing spending on those that fall short. Make changes gradually and monitor results, since increasing a campaign’s budget doesn’t guarantee its ROAS will stay the same.

Toronto-based apparel brand Province of Canada gets weekly reports on their ads and gives each new ad about a week and a half to prove itself, Cofounder Julie Brown says on Shopify Masters. 

“We have an A performing ad, a B performing ad, and a bunch of Cs,” she says. “Let’s get rid of the Cs and try something new.”

Shopify’s AI-powered marketing campaign manager, Campaign Autopilot, oversees spend across Meta, Microsoft Advertising, Shop Campaigns, and Shopify Messaging. You set a monthly budget and guardrails, and it shifts spend toward the better-performing channels. Currently available in early access to eligible store owners, Campaign Autopilot is free on paid Shopify plans, with advertising costs billed separately. 

Tips for increasing ROAS

• Set a target ROAS or cost cap in your bidding
• Scale your budget gradually
• Measure ROAS on new customers separately
• Raise average order value
• Raise conversion rates on the pages your ads link to

Here are five ways to get more from your advertising budget: 

Set a target ROAS or cost cap in your bidding

Setting bidding targets or limits tells an ad platform what return or cost you’re aiming for, rather than letting it spend through your daily budget. Andrew of AJF Growth, says on Shopify Masters that he does most of his ad buying with manual bids, such as cost caps, bid caps, and target ROAS campaigns. When brands do this, he says they end up suppressing the spend on their worst ads and more efficiently scaling the spend on their best ads.

With Shopify’s Shop Campaigns, you pay only for successful customer acquisitions, and you set a daily budget and a target customer acquisition cost. After running a Shop campaign, premium tea brand Firebelly Tea doubled their ROAS and cut their customer acquisition cost by more than 50%, according to a Shopify case study. 

“You’re only paying for the sale, which is great because you can’t lose,” says Firebelly Cofounder David Segal.

Scale your budget gradually

Even strong ads lose effectiveness over time, says Dan of Unbound Merino on Shopify Masters. That’s why the brand keeps testing new concepts while increasing spend on what’s working.

“By adding more and more ads and making more iterations of the winning ads and killing the loser ads … we can add a little bit of budget every week,” he says. “We add 1.5% every single week … and our ROAS never dipped below 3.” 

Raising your budget incrementally, as Unbound Merino does, lets you monitor whether ROAS holds steady as spending increases.

Measure ROAS on new customers separately

New customer ROAS (NC ROAS) divides revenue attributed to ads from first-time buyers by ad spend, leaving out purchases from returning customers who might have ordered anyway. This helps you evaluate how effectively your advertising attracts new customers. 

Ryan Bartlett, cofounder of the men’s apparel brand True Classic, says on Shopify Masters that he checks NC ROAS each morning. For his business, 0.7 signals overspending, while 1.5 indicates a highly profitable day. He uses Triple Whale, an analytics app for Shopify stores, to measure NC ROAS. 

To track NC ROAS, use an analytics tool that distinguishes revenue attributed to advertising from new versus returning customers. You can also monitor new-customer sales in Shopify’s reports, but that figure may include revenue from customers who arrived through unpaid channels, which won’t give you an accurate NC ROAS.

Raise average order value

Average order value affects ROAS because increasing how much shoppers spend per order can generate more revenue from the same advertising budget. If a shopper who clicks your ad buys two items instead of one, your ROAS may rise. Tactics for increasing AOV include product bundling and free shipping thresholds.

Raise conversion rates on the pages your ads link to

Conversion rate is the share of visitors who complete a purchase. Higher conversion rates on your landing pages can generate more purchases from the same advertising traffic, increasing ROAS without increasing spend.

One way to improve conversion rates is to link each ad to a page that features the advertised product or offer. Testing one change at a time, a basic conversion rate optimization practice, shows which edits lift sales. You can run an A/B test that shows two versions of your landing page with different headlines, product images, or calls to action.