As global digitization accelerates, organizations realize the impending need to invest in digital advertising.
In 2018, the total national ad spend exceeded $125 billion – and it is predicted to continue to rise YOY:
With rising expenditure comes increased scrutiny.
With cutthroat competition, not every ad campaign can drive conversions and offer adequate ROI.
So, how do you know if the money you’re investing is generating revenue or not?
This is where ROAS comes in.
ROAS, or return on ad spend, is a metric for online advertisers, enabling them to track the money they make.
By calculating ROAS, you will know how many dollars you earn for each dollar spent. Additionally, it will determine which ad strategies and techniques work well so that you can apply those to your other ad campaigns.
ROI, or return on investment, is a business-centric metric used to evaluate the effectiveness of your marketing efforts as a whole.
It helps you understand how ads are contributing to your overall business finances and profit.
On the other hand, ROAS assesses the performance of specific campaigns, ad groups, or keywords.
As it focuses on individual advertising campaigns, ROAS is an ad-centric metric. It measures the gross revenue generated based on each dollar spent on ads. This way, you can learn which of your paid ad campaigns are useful and which ones you need to stop pouring money into.
To calculate ROAS for Pay-Per-Click (PPC) ads, you need to know the total PPC revenue generated by your ad strategy and the total cost of managing your ad strategy.
This includes revenue you earn from all different sources, such as product purchases and lead conversions.
Similarly, your cost includes all the expenses you incur when running your ads, such as Cost-Per-Click (CPC), management fees, software upgrades, and partner/vendor costs. Additionally, if you have purchased clicks and impressions, they will add to your expenses.
Now that you have these two figures, you just have to plug them into the ROAS formula.
There are two formulas you can use:
Divide the revenue you made from your ad campaign with the amount you spent to run your ad.
So, for example, you spend $200 on a PPC campaign and make $400 in return. Adding these values to the formula will give you a ROAS of $2. This means you’re making $2 for every $1 you spend.
However, calculating ROAS through this formula only gives you a general overview. It doesn’t tell you the overall profitability of your campaign.
So, for example, you spend $200 and make $400. But your vendor fees also cost $50. Then, the ROAS you calculate will not accurately depict the return you get.
For this reason, it’s better to use the second formula.
If you subtract your cost from the revenue before dividing the result by the cost, it will give you an adequate ROAS.
This formula doesn’t require you to evaluate any new values since it only needs the total revenue and cost. And plugging values in this formula will help you determine your marketing budgets effectively.
ROAS is a metric that needs to be tracked regularly. Ideally, you should track your ROAS throughout the ad campaign instead of at one particular time.
Although there are many indicators you can utilize to assess the success of your marketing campaigns, the end goal of your business is to earn more money.
This means tracking conversions and sales isn’t enough on its own; you need to fit them within your ROAS tracking mechanism.
But first, you need to calculate your revenue. And you can do it by following the two steps below.
The first step is to track your conversions. And you can easily do that on online advertising platforms like Google Ads, Facebook, Twitter, and Bing Ads.
All you need to do is use these platforms to set up an ad campaign and conversion tracking. If you’re using Google Ads, you can even track phone call conversions.
This way, you will know which clicks on your PPC ads led to which purchases. In addition, you will stay updated on your conversion rates and purchases that result from ad clicks.
The next step is to connect your online advertising platform to customer relationship management (CRM) software.
By doing this, you can tie all your marketing data to a new lead. Hence, when a lead converts into a customer, you’ll know exactly which marketing efforts led to the sale.
So, by tracking your conversions and sales, you get access to your revenue data. Simultaneously, the advertising software you use will detail your ad spend.
Now, all you need to do is plug the values in any of the two ROAS formulas, and you’ll know whether your money is being spent right or not.
ROAS enables you to gather valuable insights – based on which you can make informed marketing decisions.
Since the final goal of advertising is to make money, calculating ROAS should be a priority. Even though conversion rate and click-through rates are essential, they don’t guide you regarding changes to your advertising model.
In addition, knowing your ROAS can help you do the following:
Using other metrics alone will not give you complete insights, so you will not make informed marketing decisions.
Think about click data – it tells you the best click-through rate (CTR) and the lowest cost-per-click (CPC). So based on this data, you might think you can evaluate which of your campaigns are successful. But that’s not possible because CTR and CPC don’t tell you the quality of clicks and the traffic you’re getting.
Similarly, conversion data helps you track conversions and point out areas of weakness in your strategy. But it will not determine the quality of traffic and leads you are receiving.
However, ROAS ties all these metrics together by providing you with actual numbers you’re earning and spending on each channel.
Additionally, various factors result in a lower CPC or conversion rate, but that doesn’t mean your campaign is unsuccessful. In fact, such campaigns can still have high profitability. But if you don’t calculate ROAS, you won’t know that.
And then you will make decisions that will cost more than you gain.
A good ROAS target depends on many factors, including your industry, average CPC, and profit margins. This means a satisfactory ROAS varies from business to business.
In addition, a good ROAS differs from campaign to campaign. For instance, campaigns that aim to raise awareness, grow subscriptions and build a following generally have a low ROAS.
But if you want to drive a greater number of conversions and sales, you should expect a higher ROAS.
Still, no general rule can determine how high your ROAS should be. But, most businesses do aim for an overall 4:1 ratio.
Getting $4 for every $1 spent gives you enough money to keep your business afloat or even make a profit.
Here is a breakdown of different ROAS targets you should be aiming for at different phases of your business:
Most businesses think if they make a sale that amounts as much as they spent on marketing, they will break even.
But that’s not true because when you factor in all your variable and fixed costs, you are likely making a loss.
So, making $1 for each dollar you spend on your PPC ad campaign is not enough.
Let’s say you spend $100 on marketing and make a $200 sale. It means you are earning $2 for every dollar you spend.
But, 2x ROAS is still low because fixed costs are generally high, resulting in a deficit.
As long as you get some consistent sales, you can break even with a 3x ROAS.
For example, you spend $50 on marketing, which results in a $150 sale. So, now, you have an added $100, which you can use to cover additional ad-running costs.
4:1 ROAS is where you start making a profit, which is why most businesses aim for at least a 4x ROAS.
When each dollar spent gives you $4 in return, you have enough money to make a profit. But ultimately, that depends on your business model and costs.
So, if you have very high variable and fixed costs, it may not result in a profit. But that is often not the case.
With a 5x ROAS, you can start using your marketing practices to grow your business.
At this stage, you’re making enough profit that you can afford to invest more in your marketing and customize various goal-specific ad campaigns.
In the end, the ideal ROAS for your business depends on your ROAS targets, business expenses, and marketing goals.
Also, if you have different PPC campaigns running simultaneously, set separate ROAS targets for each. Then, calculate their ROAS individually to see if they are bringing in enough cash.
But if your ROAS is still low, look into all other metrics and practices to identify the reasons behind it. Then, when you know which strategies are working, you can implement those across other campaigns.
Not being able to meet your ROAS target can be frustrating. But a low ROAS doesn’t always mean that your campaign is a complete failure.
Sometimes, you can make small changes to your current campaign to increase ROAS.
Some tweaks you can make are:
Placing an ad at the right location is key to attracting quality traffic. So if you have a low ROAS, consider changing the location of your ads.
For example, try placing them on e-commerce sites or social networking sites. Additionally, you can change the layout for your ad, such as converting a banner ad with a pop-up.
Your ad copy should gauge the user’s attention, resulting in the maximum number of ad clicks.
Similarly, your ad copy should be optimized for SEO so that your ad can show up organically in search results.
A helpful tip to follow is to use specific, long-tail keywords that are relevant to your brand.
For more detail, please visit our post outlining and weighing the difference between SEO and PPC.
Targeting 56.16% of all web traffic that comes through mobile phones can boost your ROAS.
If your advertising campaign is limited to desktops and isn’t generating high revenue, you should consider running mobile ads.
Use your ROAS to eliminate campaigns that are performing extremely poorly. Instead, use that money and effort on campaigns that show growth potential.
At the same time, try not to get carried away with spending on ad campaigns. So, place a cap on your budget for PPC campaigns because lots of click-throughs are only beneficial if your budget supports them.
Return on ad spend (ROAS) is a valuable metric that businesses of all sizes can use. And it helps you allocate adequate budgets for numerous ad campaigns.
Globally, 31% of all online users click on ads, which means investing in online advertising has a good chance of increasing leads. But to make the most of your marketing efforts, you need to strategize accordingly.
By regularly tracking your ROAS, you will make informed, data-driven decisions that will eventually boost your revenue.
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If you’re running an e-commerce or retail business, you already know that visibility is everything. The best product in the world won’t sell if no one sees it. That’s where paid ads for ecommerce comes in.
Done right, they drive traffic, conversions, and repeat customers.
Done wrong, they drain your budget and leave you wondering what went wrong.
Whether you’re spending $500 a month or $50,000, your goal is the same: profitability. Not just clicks, and certainly not just impressions. You want to turn ad dollars into real, predictable revenue.
So how do top-performing e-commerce and retail brands make their paid ads work?
What are they doing that you’re not?
This guide breaks it down step-by-step, so you can start running profitable ads with confidence.
Before you launch a single campaign, you need clarity on your audience and goals. Are you trying to boost first-time sales? Increase average order value? Each objective requires a different strategy and metrics for success.
Don’t fall into the trap of launching ads just to “see what happens.” Paid media works best when it’s part of a bigger strategy. So before you log in to Google Ads or Meta Ads Manager, get specific about what success looks like.
If you want to run profitable paid ads, knowing your numbers is the foundation of your entire strategy. Without a clear understanding of your margins, break-even points, and how much you can afford to spend to acquire a customer, you’re essentially gambling with your ad budget.
And in e-commerce, that can get expensive fast.
Let’s start with the most critical numbers you need to know:
Your break-even ROAS tells you the minimum return you need on your ad spend to not lose money. It’s calculated by dividing 1 by your gross profit margin.
So if your margin is 50 percent, your break-even ROAS is 2.0. That means for every $1 you spend on ads, you need to make $2 in sales just to break even.
For example, let’s say you’re running Facebook Ads and spending $1,000 on a campaign. If your break-even ROAS is 2.0, you need to generate at least $2,000 in revenue to avoid losing money. Anything above that is profit. Anything below that eats into your cash.
Once you know your numbers, you can reverse-engineer your ad strategy instead of throwing money into the void and hoping for results. For instance, if your AOV is low (say $25), you might struggle to profit from ads unless you have a very low COGS or high conversion rates. In that case, you might want to:
On the other hand, if your AOV is $150 and your margins are strong, you have more room to compete in ad auctions, bid more aggressively, and test multiple audiences and creatives without instantly wiping out your profit.
A lot of beginner advertisers focus entirely on immediate return from ads. That’s understandable – but short-sighted. If you’re breaking even or slightly losing on the first sale, that might still be a smart move if you’re building long-term customer relationships.
That’s where Customer Lifetime Value (LTV) comes in. If you know that your average customer places three orders a year, each worth $60, then their LTV is $180. If you spend $40 to acquire that customer with your first ad, but earn $140 more over the next 12 months, that ad was extremely profitable in the long run.
Top e-commerce brands build their paid strategies around LTV-to-CAC ratio – how much they earn over time compared to what they paid to acquire the customer.
A healthy ratio is usually 3:1 or higher. So if you’re spending $50 to acquire a customer, you want to earn at least $150 from that customer over time.
Once you understand your numbers, you can plan your ad spend with precision. You’ll know exactly:
Let’s say you want to make $5,000 in profit this month, and your product has a 50 percent gross margin. That means you need $10,000 in sales. If your target ROAS is 2.5, you can spend up to $4,000 in ad spend to hit that goal. With those numbers in hand, you now have a roadmap for campaign budgeting, not just a shot in the dark.
Every ad platform has strengths. But if you try to use them all at once, you’ll burn through your budget without learning much. Instead, pick one or two that align best with your business model and customer behavior.
If you’re selling visually appealing products like apparel, skincare, or home goods, platforms like Instagram and TikTok can deliver strong returns – especially with the right creative. If you’re focused on high-intent buyers, Google Search and Shopping Ads are goldmines. And if you’re targeting professionals or B2B retail buyers, LinkedIn may offer surprising results.
Test channels strategically. Start with the one that matches where your customers spend their time and scale from there. The best platform for you is the one where your ideal customers are already shopping, scrolling, or searching.
One of the biggest mistakes retailers make is casting too wide a net. You don’t want everyone to see your ad – you want the right people to see it.
On Google, this means targeting high-intent keywords that signal buying behavior. Focus on terms like “buy,” “best,” “free shipping,” or product-specific searches. On Facebook, Instagram, or TikTok, you’ll want to dial in your custom audiences using demographic data, lookalikes, interests, and behavior.
Don’t forget retargeting. Most people won’t buy the first time they visit your site, but retargeting brings them back when they’re ready. Set up ads that follow people who viewed a product, added to cart, or engaged with your brand but didn’t check out.
The more relevant your targeting, the more efficient your spend and the higher your return.
Creative is the make-or-break factor in most e-commerce ad campaigns. You can have perfect targeting and the right product, but if your ad doesn’t grab attention in the first two seconds, it won’t convert.
Your creative needs to do three things quickly:
Use high-quality product photos or videos. Show your product in action. Highlight a clear benefit or solve a specific problem. Incorporate customer reviews or user-generated content to build trust.
For paid social, test multiple creatives at once – video vs. image, UGC vs. branded, short-form vs. long-form – and let performance data guide your iterations. On search platforms like Google, focus on copy that’s compelling and packed with relevant keywords. Test different headlines and descriptions to see what gets the best click-through rate.
Sending paid traffic to your homepage is a rookie mistake. You want every click to land on a page that’s designed to convert. That means fast load times, mobile optimization, and a clear call-to-action.
If you’re promoting a specific product, send users to that product page and not your full catalog. If you’re offering a bundle or a seasonal deal, create a dedicated landing page with copy, visuals, and layout tailored to that offer.
Remove distractions. Reduce friction. Make it stupid-easy for people to buy. The less effort it takes, the more sales you’ll see. And don’t forget to A/B test. Sometimes a simple tweak to your headline or CTA can double your conversion rate overnight.
Once your ads are live, your job isn’t done. In fact, this is where it really begins. You need to monitor performance regularly, looking at more than just the surface-level metrics.
Click-through rate (CTR) tells you how well your ad is capturing attention. Conversion rate shows how well your landing page is sealing the deal. ROAS tells you how profitable your campaign is. And CPA helps you compare efficiency across different products or audiences.
Watch for early indicators of success – or failure.
Treat your campaigns like living systems. Tweak, test, and improve them continuously.
Once you find a winning combination – an ad, offer, and audience that works – it’s time to scale. Increase your budget gradually while keeping an eye on performance. Scaling too fast can tank your results, so go step by step.
Duplicate high-performing campaigns to test new audiences or creatives. Experiment with upsells, bundles, or time-limited offers to increase AOV. Layer in email or SMS marketing to retarget paid traffic and drive repeat sales.
And just as importantly, don’t be afraid to kill underperforming ads. If something isn’t working after a reasonable test period, cut it. Your budget should be flowing to what works – not what you hope will work.
One of the biggest mistakes in paid advertising is chasing one-off sales without thinking about the bigger picture. Winning e-commerce brands think in terms of customer lifetime value.
If your first sale breaks even, that’s fine. (As long as you have a plan to turn that customer into a repeat buyer. ) You can use post-purchase emails, loyalty programs, and retargeting ads to bring people back.
At the end of the day, when you view paid ads as the beginning of a customer relationship – not the end – you unlock real long-term profitability. And at PPC.co, that’s where we want to help you! We offer industry-leading PPC management services for ecommerce and retail brands who want to stop wasting ad spend and start generating real ROI.
Contact us today to learn more!
