Advertising ROAS Calculators

A good ROAS will vary from channel to channel, and from industry to industry. For most eCommerce companies, the minimum ROAS to be profitable is around 5x (also referred to as 500% return on ad spend). Some business owners may be able to sustain a ~3x ROAS, if their cost of goods sold (COGS) is lower, or they sell digital products. 

What this means: If you have a 5x ROAS target, it means you will receive $500 in revenue for every $100 you spend on ads. Or, if you have a 1200% ROAS target (aka 12x) you will receive $1,200 for every $100 you spend on ads.

A higher ROAS is better. 

If you’re looking to figure out what a good ROAS is for your situation, here are some tips to help:

• First, take into account your per-item cost (i.e. how much it costs to produce one item) this can include any time and/or materials that go into making that single item)
• Second, calculate your fixed costs over a given time period, like a month or year. This includes costs that don’t really change no matter how many items you produce – this includes things like rent, salaries, insurance, software, etc.
• Third, divide your fixed costs by the total number of items you will sell, giving you a “fixed cost per item”
• Finally, add your per-item cost to your fixed cost per item, which will give you a good idea of your COGS 

With that COGS number, you can look at how much revenue your ads need to generate to pay for that item.

Here’s a small business scenario to help make it more clear: Sam’s Custom Bird Houses.

• Per-Item Costs: Sam owns a business that makes custom wooden bird houses. To make each bird house, Sam has to buy $10 of materials (wood, glue, nails, paint).
• Fixed Costs: Sam’s business rents a workshop with an attached office for $500 per month. Sam pays a total of $5,000 in salary per month; Insurance costs $250 per month, and other office expenses are $250 per month. That means Sam’s total fixed monthly costs are $6000. 
• Number of Items: Each month, Sam produces 500 bird houses in the workshop, and sells them all.
• Fixed Cost Per Item: Sam’s fixed cost per item is $12
• Total Per-Item COGS: per item cost ($10) + fixed cost per item ($12) = $22 per item
• Selling Price Per Item: $50 
• Profit: For every item sold, Sam’s profit is $28

Next, let’s look at Sam’s total costs per month.

• Materials Costs Per Month: 500 birdhouses x $10 = $5000
• Fixed costs per month: $6000
• Total Costs Per Month: $11,000

Now let’s look at a couple advertising ROAS scenarios for Sam. Let’s assume she has $5000 to spend in the month on Google and Meta ads. That means her total costs per month are $16,000, which includes her total costs, plus her advertising costs.

For the sake of making our calculations interesting, let’s also assume that she has 1000 additional bird houses, that she can sell at any time with no additional material costs – all she has to do is let her ads to the work and drive buyers to her Shopify site.  

ROAS Calculations

• At 1x ROAS, Sam would receive $5,000 in revenue, but would be unprofitable because the total monthly expenses are $16,000, 
• At 2x ROAS, Sam would receive $10,000 in revenue, and would still be unprofitable
• At 3.2x ROAS, Sam would receive $16,000 in revenue, and break even
• At 4x ROAS, Sam would receive $20,000 in revenue, and would have an additional $4,000 in profit
• At 5x ROAS, Sam would receive $25,000 in revenue, and would have an additional $9000 in profit
• At 10x ROAS, Sam would receive $50,000 in revenue, and would earn an additional $34,000 in profit

If Sam spent the full $5,000 on ads and achieved a remarkable 15x ROAS, all 1500 bird houses would sell for a total of $75,000 in revenue – earning Sam’s business $59,000 in profit.

Hopefully this scenario will help you get a good sense of what a good ROAS is. Most companies with a low cost basis will break even around 3x ROAS, and earn a modest profit around 4-5x ROAS. 

Earning 7-10x ROAS is definitely possible with the right product, advertising strategy, ad creative and audience. 

I love the challenge of increasing digital advertising ROAS with my eCommerce clients, and have had great success optimizing ads for a number of Shopify sites. One of my favourite clients has achieved an average of 11x ROAS over the past 2 years. 

If you’d like to explore how to make the most of your digital ad spend, contact me today and we can discuss a plan to get your digital ads on track.