How this calculator works
Return on ad spend compares the revenue attributed to advertising with the cost of that advertising. A return on ad spend of 4 means each dollar of ad spend brought in four dollars of revenue. It is not the same as profit: revenue still has to cover the cost of the products sold, so a high return can still lose money on a thin margin. Dividing one by the gross margin gives the break-even ROAS, the revenue per ad dollar at which gross profit exactly covers the ad spend. The reverse modes answer budget questions: the revenue a target ROAS requires at a given spend, and the most you can spend at a target ROAS for a given revenue.
Formula
ROAS = revenue from ads / ad spend. ROI = (revenue - ad spend) / ad spend. Gross profit on ad revenue = revenue x gross margin. Profit after ad spend = gross profit - ad spend. Break-even ROAS = 1 / gross margin.
Worked example
Spending $5,000 to earn $20,000 of revenue gives ROAS = 20,000 / 5,000 = 4 and an ROI of 300%. At a 40% gross margin the revenue produces $8,000 of gross profit, leaving $3,000 after the ad spend, and break-even ROAS is 1 / 0.4 = 2.5. At a target ROAS of 3, a $3,000 budget must produce $9,000 of revenue.
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Frequently asked questions
Why is ROAS written as a multiple rather than a percentage?
Both are used. A multiple of 4 and a return of 400% describe the same revenue per ad dollar, but the multiple is the standard in advertising reporting because it is easier to compare with a target such as 4x. The ROI output on this page uses the percentage form after subtracting the spend.
Does ROAS include the cost of goods?
No. ROAS compares revenue with ad spend only. Break-even ROAS uses the gross margin to account for the cost of goods, which is why the target ROAS is higher for a low-margin product.
Should I use gross or net revenue?
Use the revenue you can attribute to the ads and that flows into gross profit, before deducting the ad spend. Exclude sales tax and refunds, and apply the same attribution window each time so the comparison is consistent.