Strategy - 4 min read - Updated
What is a good ROAS? The one above your break-even
No ROAS is good for every business. Yours is good above your break-even, and your break-even comes from your own margin.
ROAS is sales value divided by ad cost.
Return on ad spend divides the conversion value your ads brought by what they cost. Google Ads reports it as conversion value per cost. Its target ROAS is the same ratio written as a percentage: multiplied by a hundred.
The value is whatever your account sends Google for each conversion. When it is the price of the sale, the ROAS leaves out what the sale cost you, which is why a ROAS that looks high can still lose money.
Your break-even ROAS is 1 divided by your margin.
With your own numbers, step by step. Nothing here is a benchmark.
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Work out your margin on a sale
Take the price of a sale. Subtract what that sale costs you before any advertising: the product, delivery, payment fees, the work. Divide what is left by the price. That share is your margin.
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Divide 1 by it
Break-even ROAS = 1 ÷ your margin
That is the sales value each dollar of ads must bring back to pay for itself, and no more. Below it, every sale from the ads loses money. Above it, the ads earn.
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Set your target above it
Target ROAS = (1 + the profit you want on each dollar of ads) ÷ your margin
To write it the way Google Ads does, as a percentage, multiply it by a hundred.
Counting leads, not sales? The most a lead can cost you and still break even is your average sale, times your margin, times the share of your leads that become customers.
Why the ROAS in your account can be wrong.
- Your own name. Searches for your brand convert easily, and many of those buyers were probably looking for you already.
The free audit checks this: C-05 Paying twice for your own name.
- A sale counted twice. Two primary actions for one sale double its value, and the ROAS with it.
The free audit checks this: C-16 Counting the same sale twice.
- A flat value on every conversion. The same default value for every sale gives the ROAS of a setting, not of your sales.
The free audit checks this: C-15 Placeholder revenue values.
- All the credit to the last click. Each campaign's ROAS depends on which clicks get the credit for a sale.
The free audit checks this: C-18 Last-click-only credit.
- Sales after the counting window. A sale that arrives after the window closes never enters the ROAS at all.
The free audit checks this: C-14 Sales arriving after the counting window closes.
The only way to know what the ads really add is a test: a period, a region or a campaign without them, compared with one with them.
When the sale is not on the site.
A ROAS needs the value of the sale, and a lead form does not know it. Two calculations with your own numbers do the job instead.
- Cost per customer
- your cost per lead, divided by the share of your leads that become customers.
- Payback, in months
- your cost per customer, divided by what a customer brings each month after the cost of serving them.
Bring the sales that close in your CRM back into Google Ads, and the account can bid on customers instead of form fills: how to import them.
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In their words.
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Two more guides.
- Strategy How much to spend on Google Ads, from your own numbers A budget from three of your own numbers, and when to raise it. 4 min read
- Strategy Performance Max: when it fits, and how to set it up When Performance Max fits, where it overlaps your brand, and the controls Google gives you. 5 min read
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