ROAS vs profit: why a good ROAS can still lose money

ROAS tells you how much revenue your ads brought in. It says nothing about what those sales cost you. That’s why a campaign can show a healthy ROAS and still lose money.

Check your own campaign

Profit

-$280.00

What you actually kept

ROAS

2.00×

Return on ad spend

Break-even ROAS

2.21×

Minimum ROAS to not lose money

Profit margin

-4.67%

Profit as % of revenue kept

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What ROAS measures

ROAS = Revenue ÷ Ad spend

ROAS compares revenue with ad spend. It is useful for comparing campaigns with similar products, but it treats a sale with a 70% margin and one with a 10% margin as equal.

What profit measures

Profit = Revenue − Refunds − Costs of each sale − Ad spend

Profit counts everything: the products, shipping, payment fees and refunds as well as the ads. It is the number that tells you whether to keep spending.

How to connect the two

Break-even ROAS = Price ÷ (Price − Costs per order)

Work out your break-even ROAS once from your price and costs. From then on, any ROAS above it means profit and any ROAS below it means loss. The further above, the more you make.

Questions

Should I stop using ROAS?

No. ROAS is quick and every ad platform reports it. Just judge it against your break-even ROAS, not against a rule of thumb.

What is POAS?

Profit on ad spend: gross profit (revenue minus the costs of each sale) ÷ ad spend. Above 1× the ads paid for themselves. AdMargins shows it for every brand in the app.

Why don’t ad platforms show profit?