ROAS (Return on Ad Spend)
A marketing metric that measures revenue generated for every dollar spent on advertising.
What You Need to Know
ROAS tells you whether your advertising is profitable. It's calculated by dividing revenue from ads by the cost of those ads.
Formula: ROAS = Revenue from Ads ÷ Ad Spend
Example:
- Ad spend: $5,000
- Revenue generated: $15,000
- ROAS = $15,000 ÷ $5,000 = 3.0× (or 3:1)
Meaning: For every $1 spent on ads, you earned $3 in revenue.
Industry Benchmarks:
- E-commerce: 2.5-4.0× minimum
- SaaS: 3.0-5.0×
- B2B: 4.0-8.0×
- Local services: 3.0-6.0×
Break-Even ROAS: Your break-even ROAS depends on your profit margins:
- 40% margin → Break-even ROAS = 2.5×
- 50% margin → Break-even ROAS = 2.0×
- 60% margin → Break-even ROAS = 1.67×
Sources & References
This information is sourced from authoritative government and academic institutions:
- sba.gov
https://www.sba.gov/business-guide/manage-your-business/marketing
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Related Terms in Business & Investing
Break-Even Analysis
A calculation that determines the point at which total revenue equals total costs, showing how many units must be sold or how much revenue is needed before a business becomes profitable.
CAC (Customer Acquisition Cost)
The total cost of acquiring a new customer, including marketing and sales expenses.
Contribution Margin
The amount each unit sold contributes toward covering fixed costs and generating profit.
DSCR (Debt Service Coverage Ratio)
A measure of cash flow available to pay debt obligations, calculated as annual net operating income divided by annual debt payments.
LTV (Customer Lifetime Value)
The total revenue a business expects to earn from a customer over their entire relationship.
SBA Loan
A small business loan partially guaranteed by the U.S. Small Business Administration, offering longer terms and lower rates than conventional business loans.