ROAS Unpacked: How to calculate, optimize, and maximize your ad spend returns

When it comes to digital advertising, understanding how your spend translates into actual revenue is crucial.

Enter ROAS (Return on Ad Spend), a metric that gives you a clear snapshot of whether your ad campaigns are delivering the results you expect.

In this article, we'll explore everything you need to know about ROAS, how to calculate it, the difference between ROI and ROAS, and why it’s essential for PPC campaigns across platforms like Google Ads, Meta, and Microsoft Ads.

What is ROAS?

ROAS is one of the most critical metrics used in digital marketing to measure the effectiveness of your paid media campaigns. Simply put, it tells you how much revenue you've earned for every dollar spent on advertising. It's an essential KPI (Key Performance Indicator) for understanding whether your paid campaigns are driving profitable results.

The formula for calculating ROAS is pretty straightforward:

For example, if you spend $1,000 on digital ads and generate $7,000 in revenue, your ROAS would be 7:1, meaning you earn seven dollars for every dollar spent on your ads.

Why ROAS matters in digital advertising

If you're running digital ads, you probably already know that ROAS is the ultimate measure of success. But if you're new to advertising, think of it like a fitness tracker for your ad spend - it shows you how effectively your budget is working to drive results.

Whether you're working with Google, Facebook, or Microsoft Ads, ROAS helps you answer the big question: ‘Is my ad budget working for me’?.

In simple terms, ROAS shows you how much revenue your ads bring in for each dollar spent. It’s like your personal ROI calculator, but with a marketing twist.

Before we dive in, let’s quickly review the key terms you’ll need to understand when evaluating ROAS and throughout this article:

• Ad creative: This is the magic behind your ads. Think of it as the combination of your headline, ad copy, and visuals that grab attention, invoke interest and inspire action 🪄
• Conversion: The holy grail of digital advertising! This is THE action you want users to take after clicking your ad. Whether it’s making a purchase, signing up for a newsletter, or filling out a form, conversions are the lifeblood of ROAS, because ultimately, that’s where the revenue comes from ✅
• Conversion rate: This tells you how effective your ad is at turning clicks into actions. If a high percentage of clicks lead to conversions, your ROAS is probably looking pretty solid 📈
• Click-through rate (CTR): This is the percentage of people who see your ad and actually click on it. A higher CTR generally leads to a better ROAS, because it shows your ad is resonating with your audience 🖱️
• Cost per click (CPC): This is how much you’re paying for each click on your ad. It’s always worth keeping your CPC in check, if it's too high, it could quickly chip away at your profits and hurt your ROAS 💵
• Impressions: The number of times your ad is shown to users. While impressions don’t directly affect ROAS, they help you gauge how far and wide your ad is reaching its target audience.
• Audience targeting: Defining your ideal target audience is crucial for improving ROAS. Whether you're leveraging demographics, geographic data, behaviors or device types, effective targeting ensures you reach the right people at the right time, maximizing your ad spend 🎯

ROAS vs ROI: What’s the difference?

We mentioned ROI above, but for those not fully clued up, let’s talk about ROAS vs. ROI.

They both measure financial returns, but they’re not exactly the same.

• ROAS (Return on Ad Spend) is the measure of how your ads are performing. It compares the revenue you’re (hopefully) raking in from your ads against how much you’ve spent creating them and getting them in front of your target audience. Simple, right?‍
• ROI (Return on Investment) looks at the entire picture and factors in all costs, from advertising to product costs, salaries, overheads, and more.

While ROAS zooms in on ad performance, ROI takes a broader view, capturing the total investment. Both are essential for assessing campaign success, but ROAS is more focused on the ad-specific returns.

How PPC platforms shape your ROAS

When it comes to optimizing your ROAS, choosing the right platform is key 🔑

Each PPC platform comes with its own pros, cons and customisable tweaks that can help you to maximize your return.

Let’s dive into the details of how Google, Meta and Microsoft Ads stack up for ROAS and how you can fine-tune settings to boost results.

Google Ads is great for targeting users based on search intent, meaning you can reach people who are already looking for what you offer, making it a lot easier to drive conversions.The downside is that keyword competition can drive up your CPC, which can affect your ROAS.

To optimize, focus on long-tail keywords that are less competitive, use ‘Target ROAS bidding’, and ensure you have conversion tracking set up to refine your approach over time.

Meta Ads (covering Facebook & Instagram) are powerful for audience segmentation, allowing you to target potential customers based on interests, demographics, and behaviors.

While this can help you reach potential customers at various stages of their journey, Meta’s audience tends to have less purchase intent (the likelihood that interest turns into sales) than Google’s search traffic, meaning conversions may take more effort.

To improve your ROAS, test your ad creative with A/B testing, track conversions using the Facebook Pixel, and optimize your budgets with Campaign Budget Optimization (CBO) to ensure your best-performing ads get more exposure.

Microsoft Ads offers lower CPCs compared to Google Ads, which is great for businesses trying to keep their marketing costs down. The trade-off is that Microsoft has a smaller audience than Google, so reach may be limited.

For better ROAS, focus setting up conversion tracking, and try using Enhanced CPC or Target ROAS bidding to make the most of your ad spend.

Calculating the true costs of ads

When calculating your ROAS, it's essential to factor in more than just the direct cost of the ads themselves because ultimately, if you don’t, your figures will be somewhat skewed.

The true cost of advertising includes several indirect costs that contribute to the overall expense of running an ad campaign. These costs might include:

• Graphic design: The cost of designing engaging ad visuals or banners that capture attention and drive clicks. Don't forget about the costs of hiring external designers or purchasing assets ✏️
• Copywriting: Curating compelling ad copy is vital to conversions. This could include the cost of hiring a professional writer or the time spent crafting the perfect text to encourage action 💻
• Landing page development: If you’re directing traffic to specific landing pages, ensure that you factor in the design, development, and maintenance costs of these individual pages. Well-optimized landing pages that align with your ad can significantly impact conversions, and their creation requires investment and importantly, time 🚀
• A/B testing: If you're testing multiple versions of ads or landing pages, include the costs associated with running these tests, whether it's time, tools, or team resources 🔀
• Analytics tools: Tools used for tracking performance, monitoring campaigns, and calculating conversions should also be considered. The software’s subscription fees add to the true cost 📊
• Marketing team: Don’t overlook the labor costs involved in managing campaigns, optimizing ads, or overseeing ad spend. If you outsource the management of your ad campaigns, it’s well worth factoring in these costs 📢

By factoring in these costs, you'll be able to calculate a more accurate ROAS that reflects the full investment you're making into your ad campaigns.

What a high impact ROAS looks like

When you're optimizing your campaigns, hitting the right ROAS is like striking gold, but what exactly does a "good" ROAS look like?

Well, it depends on your industry, goals, and the platforms you're using.

But let’s break it down in a way that resonates with the day-to-day hustle of digital marketers.

1:1 (break-even): The "I'm not losing any money" zone 👌

At 1:1, you're breaking even. You're not losing money, but you're not exactly winning either. This is common for early-stage campaigns, but it’s not ideal if you’ve put time and effort into your ad creatives and campaign management.

If you’ve optimized your targeting and messaging, you should be seeing better returns. Focus on refining those elements to move beyond the break-even point and start reaping the rewards of your hard work ⚖️

3:1: The “I’m making money and loving it” zone 💰

A 3:1 ROAS means for every dollar you spend, you're getting three back. This is the sweet spot, you're profitable and can scale. It’s a sign your campaign is doing well, but you can always tweak and improve to push for higher returns. Try refining your targeting or testing new ad creatives to boost engagement.

You can also experiment with different bidding strategies to optimize your spend and increase profitability.

5:1 or higher: The “I’m hitting it out of the park” zone 💪

Now we’re entering the realm of serious success.

A 5:1 ROAS means you’re pulling in five times the revenue from your ad spend. At this level, you’re not just doing well, you’re on fire! 

This is the ideal target for highly optimized, conversion-driven campaigns. If you’re seeing this type of ROAS, you’re not just surviving, you’re thriving.

PPC channel ROAS benchmarks

ROAS varies significantly by sector, product, and individual market conditions.

According to statistics from WordStream, WhatConverts, Databox, and HubSpot, different industries see different ROAS benchmarks depending on competition, customer acquisition costs, and sales cycles.

For example, eCommerce businesses typically see a ROAS of 1.5 - 3.5, while B2B SaaS companies often fall within the 1.5 - 2.5 range due to longer sales cycles and higher lead nurturing costs.

Meanwhile, industries like real estate and travel tend to see higher ROAS due to high-intent searches and larger transaction values. Below are average ROAS figures for key sectors across Google Ads and Facebook Ads:

Data for Microsoft Advertising is less commonly reported, however, certain industries perform exceptionally well due to the platform’s demographic skew.

Microsoft’s audience tends to be older, higher-income professionals, making it an advertising platform particularly effective for sectors like finance, legal services, B2B SaaS, and high-ticket eCommerce.

Why context matters when evaluating your ROAS

Keep context in mind, ROAS is always relative to your campaign goals and overall strategy.

A 3:1 might be great for a startup, while a high-margin SaaS company could aim for 7:1 or more. Factors like campaign stage, platform, and audience impact what's achievable.

A good ROAS isn’t just about numbers; it’s about maximizing your ad budget. Keep testing, optimizing, and iterating to push your ROAS higher. When you do, your ads will work even harder for you.

Signs of a bad ROAS: How to spot & fix them 👀

A bad ROAS indicates that your advertising spend is not bringing back sufficient revenue, which is often a sign that there's an issue somewhere in your campaign.

If you're seeing a poor or even negative ROAS, it’s crucial to quickly identify the specific factors causing it.

Common reasons for a low ROAS can include:

1. High CPC (Cost per click): If your CPC is looking too high, it’s likely you’re spending more than you're earning. If you’re bidding too aggressively on expensive keywords, your clicks might end up costing you more than the revenue they bring in. Try lowering your CPC or focus on cheaper, more relevant keywords to boost your ROAS 💸
2. Low conversion rate: A low conversion rate means your traffic isn't turning into sales. Check for slow or confusing landing pages, weak CTAs, or a disconnect between what your ad promises and what your landing page delivers. Remember, the core product message needs to be consistent and compelling ⚠️
3. Irrelevant audience targeting: What if your ads aren’t reaching the right audience? You might get clicks, but conversions are another story. Avoid broad targeting, and instead, refine your audience with remarketing lists or lookalike audiences to focus on those most likely to convert 🚫
4. Ineffective ad copy or creative: Ads that don’t grab attention inevitably waste your marketing budget. It’s worth testing different copy, images, and CTAs to see what resonates with your audience and drives better results - A/B testing can be your friend 📝
5. Poor attribution tracking: Without attribution and metrics tracking, you’re flying blind. It’s important to make sure you’re capturing all conversions and tracking across devices to get an accurate view of your ROAS 🔍
6. Inadequate Budget Allocation: A bad ROAS might mean you're throwing budget at underperforming campaigns. Sometimes, it’s worth knowing when to cut your losses, review your spend regularly and shift it toward the campaigns that are actually delivering results ✂️

Click fraud: The threat to your true ROAS ⚠️

Click fraud is one of the biggest culprits distorting the ROAS you think you’re achieving. If even 20% (a commonly reported average) of your clicks are fraudulent and you're not using fraud protection software, your ROAS is essentially a guess. Without accurate data, it’s impossible to make informed decisions about your ad spend.

The first step is spotting the red flags 🚩

If you're seeing a high click-through rate but minimal conversions, it might be time to dig deeper. Sudden surges in traffic from the same location or device type are also indicators of suspicious activity. And because bots often bounce quickly, unusually short session times are a key sign of fake engagement.

Once you've flagged potential fraud, it’s time to adjust your ROAS calculations. For instance, if you suspect that 20% of your clicks are fraudulent, it’s crucial to factor that into your performance analysis for a clearer picture. Fraud detection tools can help filter out this bad traffic, leaving you with cleaner data to make smarter decisions. Here’s some of their key features:

• Detects fraud in real time: The moment a fraudulent click happens, the software catches it, typically using an embedded tag/script on your website's landing pages, ensuring your data stays clean and your ROAS is not skewed by fake traffic.
• Catches repeat offenders: Using device and browser fingerprinting, it tracks and blocks devices that repeatedly generate suspicious clicks, so you’re not wasting money on bots or competitor clicks.
• ‍Excludes known bad IPs: By filtering out IP addresses with a history of fraudulent activity, it stops the same offenders from draining your budget time and time again.
• Refines geotargeting: It works with you to fine-tune your targeting to make sure your ads only reach the right regions and devices, cutting out areas prone to fake clicks.
• Monitors bounce rates: If a click results in a super quick exit (aka bot or ‘fat thumb’ behavior), the system flags and removes that session, protecting your budget from useless interactions.

Prevention is your best defense against click fraud draining your budget. With software like Hitprobe, you can protect your ad spend and ensure your ROAS calculations reflect real, conversion-ready traffic, not bots, bad actors and budget draining competitor clicks.

Mastering your ROAS

ROAS isn’t just a number, it’s the pulse of your paid ad performance. But knowing your ROAS isn’t enough. To truly maximize returns, you need to go deeper.

The best marketers don’t just track ROAS, they actively improve it.

Start today by optimizing smarter, cutting wasted spend, and making every single ad dollar count with Hitprobe.