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ROAS is the revenue your ads bring back for every dollar you spend, so $20,000 of sales from $5,000 of ads is a 4x ROAS. The number most people skip is the break-even ROAS, which is 1 divided by your gross margin. At a 40% margin you need 2.5x before a single order makes money, and a 3x that looks healthy in the dashboard is barely paying for the stock.
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What they mean
Your ROAS is 4.00x. Half of a poor ROAS is the landing page.
Start with the gap between your ROAS and your break-even ROAS. A 4x ROAS on a 40% margin leaves 1.5x of headroom, and every dollar of that headroom is profit you can put back into the campaign or keep.
If your ROAS sits below the break-even line, the campaign loses money on every sale, however large the revenue looks in the Google Ads dashboard. Google never asks what the product cost you, so it will happily report a 2x ROAS on a 30% margin as a win.
Margin is the input people guess at. Use the gross margin after product cost, shipping and payment fees, because that is the money left over to pay for the click. A ten point error in margin moves the break-even from 2.5x to 3.3x, which is the difference between growing and quietly losing.
A ROAS target is only useful once it sits above break-even with room for your fixed costs. My guide to ROAS for PPC shows how to set that target, and my PPC budget guide works out how much spend the target can carry.
It depends on your margin. Break-even ROAS is 1 divided by gross margin, so a 50% margin needs 2x and a 25% margin needs 4x before the campaign earns anything. A good ROAS sits well above that line. Most ecommerce advertisers aim for 4x or better, and the Plunge.com case study in my ecommerce PPC guide ran at 17x.
Divide 1 by your gross margin as a decimal. A 40% margin gives 1 divided by 0.4, which is 2.5x. Below that figure you lose money on every order the ads bring in, however healthy the revenue looks.
No. ROAS compares revenue to ad spend and ignores what the product cost you. ROI compares profit to total cost. A 3x ROAS can be a negative ROI once a thin margin, shipping and payment fees come out of the sale.
Use it as a starting point. Google counts the conversion value it can track, which misses refunds and can count one order twice across devices. Check it against your order system every month and use the lower figure.