How to Calculate ROAS and What the Number Hides

Return on ad spend is attributed revenue divided by advertising cost. A campaign producing £40,000 of attributed revenue on £10,000 of spend has a ROAS of 4.

The formula is not where the difficulty is. The difficulty is that three campaigns can report a ROAS of 4 and mean entirely different things, because the revenue figure, the cost figure and the attribution window are all choices. This post covers how to calculate it properly, what breaks it, and what to use instead when the number stops helping.

What is the ROAS formula?

ROAS equals revenue attributed to advertising divided by the cost of that advertising. Express it as a ratio or a multiple rather than a percentage, since 4 is easier to reason about than 400%.

Blended ROAS uses total revenue and total marketing cost across all channels. Platform ROAS uses one platform's reported revenue against that platform's spend. They are different numbers answering different questions, and confusing the two is the most common reporting error in ecommerce.

Which revenue should go in?

Revenue excluding VAT, shipping charged to the customer, and refunds. Most brands calculate on gross revenue and quietly overstate performance by the size of their return rate.

For a fashion brand with a 30% return rate, a reported ROAS of 4 is really closer to 2.8. That is not a rounding difference, it is the difference between a campaign that works and one that does not.

Use net revenue after returns wherever your data allows, and if returns arrive on a lag, apply a historic return rate rather than ignoring the problem.

Which costs should go in?

At minimum, media spend. Better, media spend plus the cost of producing the creative and the fees paid to whoever runs it.

A campaign at a ROAS of 4 on media alone can sit at 2.5 once production and management are included. Which version you use matters less than using the same version consistently, since the purpose of the number is comparison over time.

What ROAS do you actually need?

The break even point is one divided by your contribution margin. At a 40% contribution margin, break even sits at a ROAS of 2.5, so 3 is thin and 4 is healthy. At a 65% margin, break even is roughly 1.5 and the same ROAS of 3 is comfortable.

That is why cross brand ROAS comparisons are close to meaningless. A number that is excellent for one business is loss making for another, and the only version that travels is the one calculated against your own margin.

The target also has to account for whether you are buying new customers or re-serving existing ones, which is why maximum acquisition cost is usually the more useful ceiling. That framework sits in the maximum CAC you can afford at peak.

Why does platform ROAS overstate performance?

Because every platform claims credit for sales it influenced, and several platforms claim the same sale.

Add up the attributed revenue across Meta, Google, your affiliate platform and your email tool during a promotional period and the total frequently exceeds what the business actually took. None of the platforms are lying. They are each answering "did this customer see our ad before buying", and during peak the answer is often yes for all of them.

Attribution windows compound this. A 7 day click and 1 day view setting reports a different number from a 1 day click setting on identical activity.

When does ROAS stop being the right measure?

When you are scaling, when the customer buys more than once, and during heavy promotional periods.

Scaling always costs efficiency. A campaign at a ROAS of 6 on £5,000 a week will not hold 6 at £25,000 a week, and refusing to accept a lower ROAS at higher volume caps the business at whatever the cheapest available audience happens to be.

Repeat purchase changes the arithmetic entirely. If a customer buys three times a year, the first order's ROAS describes an acquisition cost rather than a return.

And during peak, blended ROAS improves for a reason that has nothing to do with your advertising: promotional periods pull forward existing customers who would have bought anyway.

What should you use alongside it?

Three numbers. Contribution margin, which is what is left after product, delivery and marketing. New customer acquisition cost, which strips out the returning buyers flattering your blended figure. And marketing efficiency ratio, which is total revenue over total marketing cost and is harder to game because nothing can be excluded from it.

The complete set, with what each one catches, is in the Q4 profit scorecard.

Where the commercial framing comes from

Treating peak as a margin question rather than a ROAS question is the argument running through the Q4 Profit Playbook, which is free and written for founder led DTC brands on Shopify at $5M to $30M.

Webtopia runs acquisition against contribution margin rather than platform reported return for founder led brands as an ecommerce marketing agency.

Frequently asked questions

How do you calculate ROAS?

Divide revenue attributed to advertising by the cost of that advertising. Use revenue excluding VAT, shipping and refunds, and be consistent about whether production and management fees sit in the cost figure.

What is a good ROAS?

It depends entirely on contribution margin. Break even is one divided by your contribution margin, so 2.5 is break even at a 40% margin and roughly 1.5 at a 65% margin.

What is the difference between ROAS and MER?

ROAS uses attributed revenue against one channel's spend. Marketing efficiency ratio uses total revenue against total marketing cost, which makes it harder to flatter.

Why is my platform ROAS higher than my actual revenue suggests?

Because several platforms claim credit for the same sale, and attribution windows include people who would have bought anyway. During promotional periods the overlap is largest.

Should ROAS include returns?

Yes. Calculating on gross revenue overstates performance by your return rate, which for a fashion brand can be the difference between a profitable campaign and a loss making one.