How to Calculate ROAS: Formula, Break-Even ROAS and What a Good ROAS Is

Your ads are running, Meta reports a ROAS of 2.4, and you are not sure whether to celebrate or panic. That makes sense: a ROAS only means something once you know the minimum you need. Many online stores calculate with prices that include VAT and forget shipping and returns. The campaign looks profitable while every order quietly loses money.

Short answer: ROAS is revenue from ads divided by ad spend. A ROAS of 3 means $3 in revenue for every $1 in ad spend. Whether that is good depends on your margin: your break-even ROAS is 1 divided by your margin after product cost, shipping and returns. At a 40 percent margin that is 2.5, and 3.0 if your ad platform tracks revenue including 20 percent VAT.

The ROAS formula

ROAS stands for Return On Ad Spend:

ROAS = revenue from ads / ad spend

Example: you spend $500 on Meta ads and they bring in $1,750 in revenue. Your ROAS is 1,750 / 500 = 3.5, sometimes written as 350 percent. Rather not do the math yourself? Use our free ROAS calculator.

Check two things before acting on that number:

1. Tax. The Meta pixel records whatever value your store sends. In Europe and the UK that is often a price including VAT, which is not your money.
2. Costs after the sale. Product cost, shipping, payment fees and returns still come off. ROAS only looks at revenue.

How to calculate your break-even ROAS

Break-even ROAS is the point where all your profit before advertising goes to ads. Above it you make money; below it you lose money.

Break-even ROAS = 1 / margin before ad spend

Here is the trap. Take a store selling a product for $60, including 20 percent VAT:

If you only look at product cost, you see a 70 percent margin ((60 minus 18) / 60) and a break-even ROAS of 1.43. Reality is tougher. Say 10 percent of orders come back. The product goes back on the shelf, but you lose shipping both ways and the payment fee: roughly $10.50 per return.

Expected profit per order: 0.9 x 26.50 minus 0.1 x 10.50 = $22.80.

• Break-even ROAS on revenue excluding VAT: 50 / 22.80 = 2.19
• Break-even ROAS as the pixel reports it (including VAT): 60 / 22.80 = 2.63

The store that thought a ROAS of 2 was fine is losing money on every order.

Break-even ROAS by margin

Use your margin after product cost, shipping, payment fees and returns, calculated on revenue excluding tax:

Low-margin products need a very high ROAS just to break even. That is why products with a 20 percent margin are rarely profitable on Meta unless customers come back often.

What is a good ROAS?

A good ROAS is one comfortably above your own break-even. There is no universal number, but these rules of thumb help:

• New customers: many stores accept a ROAS around break-even on the first purchase when customers reorder. Know your repeat rate before you do this.
• Existing customers and retargeting: ROAS should be clearly higher, because these people already know you.
• Do not trust the platform blindly. By default Meta counts purchases up to 7 days after a click and 1 day after a view, so some buyers who would have purchased anyway get credited. Also compare total revenue with total ad spend for the same period, known as MER (Marketing Efficiency Ratio).

ROAS vs. POAS: optimizing for profit

POAS (Profit On Ad Spend) uses gross profit instead of revenue:

POAS = gross profit from ads / ad spend

A POAS above 1 means profit, below 1 means loss. The upside: no need to remember a break-even ROAS for every product. The downside: you must send reliable profit per order, usually through an integration with your store or accounting system.

How to increase ROAS: start with the ad

More budget will not fix a weak ROAS. The biggest lever is usually the creative, because Meta uses your ad to decide who sees it. A simple test:

1. Make five versions of the same ad, each with a different opening hook and otherwise the same copy and offer.
2. Put them in one ad set with enough budget for each version to reach a few thousand impressions within a week.
3. After seven days, judge by cost per purchase, not clicks. Turn off the losers and make five new variations of the winner.

Five variations a week is a lot of manual work. With AI it takes minutes; see how to make ads with AI. In Genly you paste a product page and turn the product into ads in your own brand style.

Frequently asked questions