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Measurement and metrics

ROAS (return on ad spend)

Also called return on ad spend, ad return.

Short answer

ROAS (return on ad spend) is revenue divided by ad spend and shows how much in sales each unit of ad spend creates. A ROAS of 5 means DKK 5 in revenue per krone spent – before all other costs.

Definition of ROAS (return on ad spend).

ROAS measures the effect of ad spend: the revenue from a channel or campaign divided by the amount spent on it. The result is written as a factor (ROAS 5) or as a percentage (500 %). The figure is used to compare channels, campaigns and audiences on one shared question – what comes back per krone?

In affiliate marketing, ROAS has two perspectives. The store counts commission and network fee as its ad spend and measures how much revenue the affiliate channel creates per krone paid out. A PPC affiliate counts their ad costs on, for example, Google Ads as spend and their earned commission as the return – if ROAS falls below 1, the campaign loses money.

ROAS is deliberately a rough figure. It includes neither cost of goods, shipping, wages nor returns and therefore says nothing about profit. Its strength is speed and comparability: ROAS can be calculated per campaign from day to day, whereas a full ROI calculation requires all costs.

How it is calculated

ROAS = revenue from the channel ÷ ad spend

revenue from the channel
sales attributed to the channel in the period, excluding VAT
ad spend
the total spend on the channel – for a store in an affiliate program: commission plus network fee

Example

Revenue
DKK 100,000
Spend
DKK 20,000
ROAS
5.0 (500 %)

The channel creates DKK 5 in revenue per krone spent – whether that is good is decided by the gross margin, not by the figure itself.

Break-even ROAS: when do you make money?

The ROAS needed to break even is 1 divided by the gross margin. A store with a 25 % gross margin needs a ROAS above 4 to make money on the channel – a margin of 50 % only requires a ROAS above 2. Without that calculation, a ROAS of 3 can look impressive and still be a loss.

Only compare ROAS between channels on equal terms: the same period, the same VAT treatment and the same attribution rules. A channel with a long attribution window gets more sales attributed than one with a short window – that moves ROAS without moving reality.

ROAS vs. ROI

AspectROASROI
Measuresrevenue per unit of ad spendprofit relative to total investment
Costs includedonly the ad spendall costs – goods, tools, time
Answerswhich campaign should get more budget?are we making money on this?
Pacecan be calculated continuously per campaignrequires the full cost picture

Steer campaigns with ROAS and decide profitability with ROI – the first figure without the second can hide a loss.

How it goes wrong

  • 01

    Revenue mistaken for profit

    ROAS 4 sounds like a fourfold return, but it is only revenue. With a low gross margin, ROAS 4 can be below break-even. Always work out break-even ROAS before celebrating the figure.

  • 02

    VAT inflates the figure

    If revenue is measured including VAT and spend excluding it, ROAS is overstated by 25 % (at the Danish VAT rate). Use figures excluding VAT in both numerator and denominator.

  • 03

    Channels with different windows compared directly

    Two channels with different attribution windows have sales attributed by different rules. Adjust for that before moving budget according to the ROAS figures.

At Affilyflow

ROAS (return on ad spend) in practice

For a store on Affilyflow, the ad spend in the ROAS calculation is easy to work out: the store's total price per sale – the commission plus the network fee, which is 20 % of the total price. If the store sets its total price at 10 %, a sale of DKK 1,000 excluding VAT costs DKK 100: DKK 80 to the affiliate and DKK 20 in fees. Commission is calculated on the order value excluding VAT, so numerator and denominator can be kept on clean figures. Via the Shopify app, however, it is calculated on the value of the goods without shipping, where it is not yet confirmed whether VAT has been deducted.

Frequently asked questions

How do you calculate ROAS?

ROAS is the revenue from a channel divided by the ad spend on it. If DKK 20,000 in spend creates DKK 100,000 in revenue, ROAS is 5, often written as 500 %. Use amounts excluding VAT at both ends.

What is a good ROAS?

It depends on the gross margin. Break-even ROAS is 1 divided by the margin: with a 25 % margin ROAS must be above 4, with a 50 % margin above 2. A good ROAS sits comfortably above your own break-even point.

What is the difference between ROAS and ROI?

ROAS measures revenue per unit of ad spend and only counts the ad spend. ROI measures profit relative to all costs. ROAS is used for ongoing campaign management, ROI to decide whether the effort is profitable overall.

Is ROAS calculated with or without VAT?

Calculate excluding VAT in both revenue and spend. If VAT is mixed into one side, the figure is skewed by the VAT rate – 25 % in Denmark – and campaigns are compared on a distorted basis.

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