ROAS (Return on Ad Spend)
The revenue generated for every dollar spent on advertising.
What is ROAS (Return on Ad Spend)?
ROAS (Return on Ad Spend) measures the revenue generated for each dollar invested in advertising. It's one of the most important metrics for evaluating campaign profitability.
The formula is: ROAS = Revenue from Ads ÷ Ad Spend. A ROAS of 4:1 means you generate $4 in revenue for every $1 spent on ads.
Unlike ROI, which factors in all costs (product costs, overheads, etc.), ROAS specifically measures advertising efficiency. A positive ROAS doesn't always mean profitability if your margins are low.
Target ROAS varies by business model and margins. E-commerce typically needs 4:1 or higher, while high-margin services might be profitable at 2:1. Consider lifetime value, not just initial sale value.
ROAS in the NZ Market
NZ businesses should aim for minimum ROAS of 3:1 to 5:1 for sustainable growth, though high-margin businesses can work with lower ratios.
Account for GST in your calculations - use GST-exclusive figures for accurate ROAS measurement.
Seasonal variations in NZ (summer holidays, school terms) can impact ROAS, requiring adjusted expectations during different periods.
NZ Business Examples
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An online retailer in Auckland spends $5,000 on ads and generates $20,000 in sales, achieving 4:1 ROAS -
A Wellington SaaS company invests $10,000 in Google Ads and closes $60,000 in annual contracts, hitting 6:1 ROAS -
A Queenstown tourism operator spends $2,000 on Facebook ads during ski season, generating $12,000 in bookings (6:1 ROAS)
Real-World Industry Examples
E-commerce
An online fashion store runs Performance Max campaigns
Achieves 4.5:1 ROAS with $50,000 ad spend generating $225,000 in revenue
Home Services
A solar panel installation company in Auckland runs search ads
Maintains 8:1 ROAS with $3,000 monthly spend driving $24,000 in quoted work
Professional Services
A business coaching service targets SMEs with LinkedIn ads
Records 10:1 ROAS when accounting for multi-year client lifetime value
Related Terms
Frequently Asked Questions
What is a good ROAS?
A good ROAS depends on your margins. Generally, 4:1 is considered good for most businesses. High-margin services (coaching, software) can be profitable at 2:1, while low-margin businesses (retail) may need 5:1 or higher.
How is ROAS different from ROI?
ROAS measures revenue per ad dollar (Revenue ÷ Ad Spend), while ROI measures profit per ad dollar ((Revenue - All Costs) ÷ Ad Spend). ROAS is higher but less comprehensive than ROI.
Should I include GST in ROAS calculations?
No, use GST-exclusive figures for accurate ROAS measurement. GST is a tax collection mechanism, not actual revenue, so including it inflates your ROAS artificially.
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