ROAS: definition, calculation, and the threshold below which you lose money

ROAS (Return On Ad Spend) measures the revenue generated for each euro spent on advertising. A ROAS of 3 means €1 of advertising brought back €3 of sales.

ROAS = revenue attributed to advertising ÷ ad spend.

Is a ROAS of 3 good?

It depends entirely on your margin. ROAS counts revenue, not profit. On a €100 sale, if the product, packaging and shipping cost you €70, only €30 is left to pay for the advertising.

That is why a ROAS is always read next to a threshold.

The break-even threshold

Break-even ROAS is the point where advertising just pays for itself, with no gain or loss on the sale.

Break-even ROAS = 1 ÷ gross margin (as a share of the selling price).

• 50% margin: threshold at 2. Below it, every sale costs you money.
• 30% margin: threshold at 3.33.
• 70% margin: threshold at 1.43.

A brand selling at a high margin can therefore be profitable at a ROAS that would ruin a reseller.

A real case

At a cosmetics brand I work with, the break-even threshold was 1.64, which means a margin of about 61%. Over six months, Meta reported a ROAS of 2.83. The shop's back office confirmed 2.29. The full case.

Both numbers are above the threshold, so advertising was profitable either way. But the second is the one to trust for steering: it is the one that was actually cashed.

Why the platform's ROAS sometimes lies

Meta and Google claim a sale when the person saw or clicked an ad within a certain time window. Several things inflate the number:

• Double counting. The same sale claimed by both Meta and Google.
• Buyers who would have come anyway. A loyal customer sees an ad, then buys as they would have regardless.
• Refunds. The platform counts the order, not the return.

Good practice: compare the reported ROAS every month with the shop's real revenue over the period, and steer on the gap.

ROAS vs ROI

ROI (return on investment) compares net profit with total cost, advertising, fees and product included. ROAS only looks at revenue against ad spend alone. ROAS is for steering campaigns day to day, ROI for deciding whether the whole thing is worth it.

For a business selling projects to homeowners, ROAS says less: you steer on cost per enquiry, then on the cost of a signed job.

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Further reading: Meta Ads for an e-commerce brand and The Facebook advertising glossary. To act on it: how to increase your ROAS.

Want to know your real threshold? Book a 30-minute call. We work it out from your margin, before talking budget.