ROAS

What is ROAS?

ROAS is calculated by dividing the revenue from a campaign by the amount you spent on ads. If you spend 10,000 DKK on Google Ads and generate 40,000 DKK in revenue, your ROAS is 4.0 (or 400%).

Formula: ROAS = Revenue / Ad Spend

A ROAS of 4 means that you earn 4 DKK for every 1 DKK you invest in advertising.

What is a good ROAS?

It depends on your profit margin and your fixed costs:

• ROAS 2–3: Typically the minimum threshold to break even after factoring in product costs and shipping.
• ROAS 3–5: A solid result for most online stores. Covers product costs and operating expenses while generating a profit.
• ROAS 5+: Strong performance. Typically seen with brand searches or retargeting.

The right ROAS target for your online store depends on your gross profit margin. If your profit margin is 60%, you can tolerate a lower ROAS than if your profit margin is 30%.

ROAS vs. ROI

• ROAS: Focuses solely on ad spend. ROAS 4 = 4 DKK in revenue per 1 DKK spent on ads.
• ROI: Includes all costs (product purchases, shipping, operations, advertising). Shows the actual profit.

ROAS is easier to calculate and is used for day-to-day campaign management. ROI is more accurate but requires a complete overview of all costs.

ROAS Across Channels

• Google Search: Typical ROAS of 4–8 for industry-specific search terms. High intent.
• Google Shopping: Typical ROAS of 3–6. Visual format with product images and prices.
• Facebook/Instagram: Typical ROAS of 2–5. Broader reach but lower intent than search.
• Retargeting: Typical ROAS 5–15. High, because you’re reaching people who already know your store.
• Brand searches: ROAS 10+. Customers searching for your brand name have already made up their minds.

How to Improve ROAS

• Optimize the conversion rate: Improvements to checkout, product pages, and the mobile experience boost ROAS for all campaigns at once.
• Increase order value: Upselling and bundling boost revenue per conversion without additional ad spend.
• Tighten targeting: Narrower audiences may result in fewer clicks but higher conversion rates and ROAS.
• Reduce waste: Add negative keywords in Google Ads, exclude irrelevant placements in Display, and optimize bidding strategies.
• Use retargeting: Retargeting visitors and cart abandoners almost always yields a better ROAS than cold-traffic campaigns.

ROAS Limitations

ROAS is an important but incomplete metric:

• Attribution: ROAS depends on your attribution model. Last-click typically yields higher ROAS for brand and retargeting, while awareness campaigns are underestimated.
• New vs. Existing Customers: ROAS does not distinguish between new and returning customers. A campaign with a low ROAS that primarily drives new customers can be more valuable than one with a high ROAS that only captures existing customers.
• CLV: ROAS measures only immediate revenue, not the customer’s lifetime value. A new customer with a high CLV can justify a low initial ROAS.