What is ROAS?

ROAS explained simply

Imagine you plant seeds. ROAS tells you how much fruit you harvest for each seed you buy.

In advertising, the seed is the dollar you spend. The fruit is the sale that this ad brings in.

ROAS stands for return on ad spend. The calculation fits on one line: the sales generated by your ad, divided by what you spent on the ad. The bigger the number, the more sales each dollar of ads brings back.

Except that you harvest fruit, not profit. You still have to pay for the product, the delivery and everything else.

A concrete example

Let’s imagine Lina sells candles online. This month, she spends $200 on Instagram ads. These ads generate $800 of sales.

$800 of sales÷$200 of ads=ROAS = 4

Each dollar of ads brought in $4 of sales.

Is a ROAS of 4 good? It depends on her margin. We will look at that just below.

Why it matters to you

• You know if your ad sells. Without ROAS, you are spending blind.
• You can compare your campaigns. Ad A gets 2, ad B gets 5: you know where to put your budget.
• You avoid the “it’s working” trap. Sales don’t mean profit.

ROAS is also the language of ad platforms, which often show it in their dashboards. Understanding this number means understanding what the platform tells you, and what it doesn’t tell you.

It also helps you decide on your budget. If you know your break-even ROAS, you know right away if a campaign deserves more money or should stop.

How to calculate it (and read it)

1. Add up the sales generated by your ad over a period (7 days, for example).
2. Divide by the ad spend for the same period. You get your ROAS.
3. Calculate your break-even ROAS: 1 ÷ your margin. With a 25% margin: 1 ÷ 0.25 = 4. Why? With a 25% margin, each dollar of sales leaves you 25 cents. So you need $4 of sales to pay back $1 of ads.
4. Compare. Above the break-even point, you make money. Below it, you lose money, even if you are selling.

For Lina: if her margin is 25%, her $800 of sales leaves her $200. That is exactly her ad spend. Her ROAS of 4 puts her right at break-even: she earns nothing. If her margin is 50%, her break-even point is 2. Her sales then leave her $400, which is $200 of profit after ads. Her ROAS of 4 becomes excellent.

If you collect cash on delivery, count only sales that were delivered and paid for. Let’s imagine that out of Lina’s $800 of orders, only $600 is really collected. Her real ROAS drops to 600 ÷ 200 = 3. With a 25% margin, she has $150 left for $200 of ads: she loses $50.

To decide whether to cut or keep an ad, follow the order of the Coodi method: first the cost per delivered sale, next the profitability limit (Break-even CPA), then the video numbers. ROAS confirms the same thing from another angle.

Common mistakes

• ❌ Aiming for “a ROAS of 3 because that’s the norm”. → ✅ Calculate YOUR break-even point from your margin.
• ❌ Believing the ROAS shown by the platform. → ✅ Recalculate it with your real sales, especially with cash on delivery.
• ❌ Judging a campaign after 1 day. → ✅ Wait for enough data (several days, several sales).
• ❌ Increasing the budget as soon as ROAS climbs for one day. → ✅ Check that it stays above your break-even point for several days in a row.
• ❌ Confusing ROAS and ROI. → ✅ ROAS measures the ads, ROI measures the whole business.

With AI

Copy this prompt into your AI assistant, with your numbers:

I sell [product] for $[price], with a margin of [X]%.
This week: $[spend] of ads, $[sales] of collected sales, [number] orders.
1. Calculate my ROAS and my break-even ROAS.
2. Tell me if I am making or losing money.
3. Suggest 3 ways to improve profitability, starting with the simplest.

AI does the math in a few seconds. The decision to cut or continue an ad is yours.