ROAS calculation: the number to know before you spend €1 on ads
- Charlène Lin, Co-founder of Trippple Club
ROAS (Return On Ad Spend) is revenue generated divided by ad spend. To be profitable, your ROAS has to beat 1 divided by your gross margin. On a 40% margin, you need a ROAS of at least 2.5.
Many small businesses launch without this number. They find out too late that they are selling at a loss.
What is ROAS?
ROAS measures how much revenue each euro of advertising brings back.
ROAS = revenue generated by the ads ÷ ad spendExample: €500 spent, €1,500 in sales. ROAS = 3.
Careful: ROAS measures revenue, not profit. A ROAS of 3 can still lose you money.
How to calculate your break-even ROAS
Your break-even ROAS is the minimum ROAS at which you stop losing money. It depends only on your gross margin.
Break-even ROAS = 1 ÷ gross margin| Your gross margin | Break-even ROAS | What it means |
|---|---|---|
| 20% | 5.0 | €1 of ads has to return €5 in sales |
| 30% | 3.3 | €1 of ads has to return €3.30 |
| 40% | 2.5 | €1 of ads has to return €2.50 |
| 50% | 2.0 | €1 of ads has to return €2 |
| 70% | 1.4 | €1 of ads has to return €1.40 |
The thinner your margin, the harder the advertising has to work. That is the first filter: if your margin is very low, fix the offer before the ads.
Selling on quotes? Work out your maximum cost per lead
If your customers do not pay online (trades, coaching, agencies, property), ROAS is hard to track. Steer by maximum cost per lead instead.
Maximum cost per lead = average sale value × gross margin × close rateExample: a €2,000 job, 50% margin, 1 lead in 10 signs. Maximum = 2,000 × 0.5 × 0.1 = €100.
Above €100 a lead, you lose money. Below it, you can raise the budget.
The 5 numbers to gather before launching
- Average sale value: average order, or average signed quote.
- Gross margin: what is left after the cost of the product or the job.
- Close rate: out of 10 leads, how many become customers? Look at your last three months.
- Break-even ROAS or maximum cost per lead: from the formulas above.
- Test budget: what you accept spending in order to learn.
For the test budget, start from Meta's learning phase. An ad set leaves it after roughly 50 events in 7 days. If a lead costs you €20, that is about €1,000 a week to get out of it.
That number is where most small businesses stop, and it is the subject of the next guide.
The 4 ROAS traps for a small business
- A margin you do not really know. Forget delivery, payment fees or your own time, and your threshold is wrong.
- Sales Meta cannot see. A deal closed on the phone does not appear in Meta. Your real ROAS is then higher than the one displayed. The fix is to track every lead in a CRM, which guide 4 covers.
- An ignored sales cycle. If a quote takes three weeks to sign, judging the campaign after five days makes no sense.
- Volumes that are too small. Three sales prove nothing. Get enough data before you cut a campaign.
How Trippple helps you hit your target ROAS
The real problem with a small budget is the learning phase. On your own, you do not have the volume for Meta to learn quickly.
- Being in a collective that learns from everyone else's signals. Trippple brings together businesses that speak to the same buyers without selling the same thing. Meta learns on a larger volume, and every member benefits.
- Your ads stay in your name. Name, logo, identity: the customer sees your business.
- Tracking through to the sale. The Trippple CRM follows each lead to signature. You get your real cost per customer, not just your cost per lead.
Example: Maison de l'Alliance (wedding rings and jewellery) spent €349 and received 50 quote requests in one month, or €6.98 a request.
Sources
Frequently asked questions
What is a good ROAS?
There is no universal good ROAS. A good ROAS is one above your break-even point, and that point depends only on your gross margin.
What is the difference between ROAS and ROI?
ROAS compares revenue to ad spend. ROI compares profit to all costs. A flattering ROAS can hide a negative ROI.
How long before judging your ROAS?
At minimum, wait for Meta's learning phase to end and for your usual sales cycle to pass. Judging before both have happened means judging an incomplete number.
Can you calculate ROAS without online sales?
Yes, if you track leads through to signature in a CRM. Otherwise, steer by maximum cost per lead, which only needs three numbers.
The collective is joined by referral.