What is ROAS, and when can it mislead you?

The definition

ROAS (return on ad spend) = revenue attributed to ads ÷ ad spend. If ₹1,00,000 of ad spend is credited with ₹4,00,000 of revenue, ROAS is 4 (often written 4x or 400%).

ROAS is not profit

ROAS uses revenue, not profit. A ROAS of 3 can be very profitable for a high-margin product and loss-making for a low-margin one. Before judging any number, work out your break-even ROAS:

Break-even ROAS = 1 ÷ contribution margin %, where contribution margin is what's left of revenue after product cost, shipping, payment fees, discounts and expected returns.

If your contribution margin is 40%, break-even ROAS is 2.5. Below that, ads lose money on the first order.

Why platform ROAS often overstates results

• Attribution overlap. Meta and Google can both claim the same sale.
• Returning customers. Platforms may take credit for buyers who would have purchased anyway.
• Returns and failed deliveries. Revenue is counted at purchase, before refunds, returns or refused cash-on-delivery orders.
• Modelled conversions. Privacy changes mean some conversions are estimated.

Better companions to ROAS

• MER (marketing efficiency ratio): total revenue ÷ total marketing spend, across all channels.
• New-customer CAC: what it really costs to acquire a first-time buyer.
• Contribution after ad spend: the profit you actually keep.
• LTV:CAC: whether repeat purchase justifies a lower first-order ROAS.

So what's a "good" ROAS?

There isn't a universal number. A good ROAS is one above your break-even that still lets you scale. For brands with strong repeat purchase, a first-order ROAS near break-even can be the right strategy. For one-off purchases, it usually isn't.

Read what performance marketing is, or see how we report on contribution in D2C performance marketing.

A worked example

A brand sells a product for ₹2,000. After product cost, shipping, payment fees and an allowance for returns, it keeps ₹700, a 35% contribution margin. Break-even ROAS is 1 ÷ 0.35 ≈ 2.9. A campaign reporting a ROAS of 3.5 looks profitable, but if a fifth of those orders are refused on delivery, the real ROAS is closer to 2.8, below break-even. That's why we reconcile platform numbers with delivered orders.