ROAS (Return on Ad Spend)

Definition

ROAS measures how much revenue a paid ad campaign generates for every dollar spent on ads, calculated by dividing total revenue attributed to ads by the total ad spend. A contractor spending $1,000 per month on Google Ads who closes $5,000 in jobs from those ads has a 5x ROAS. But ROAS does not account for margins, fulfillment cost, or whether the leads were actually followed up with. It is a revenue ratio, not a profit indicator.

How It Works

To calculate ROAS, you track which sales or closed jobs originated from paid traffic. This requires either conversion tracking in your ad platform, a CRM that records lead source, or manual attribution from intake forms. Divide total attributed revenue by total ad spend for the period. A 3x ROAS means $3 in revenue for every $1 in ads. What qualifies as a good ROAS depends on your margins: a business with 70% gross margins can survive on 2x ROAS; a business with 25% margins needs 4x or higher to stay profitable after overhead.

Most platforms report ROAS natively for e-commerce by tracking purchases. For service businesses, ROAS requires more work because the sale happens offline. You have to tie leads back to bookings, close them, and feed that data back into your attribution.

Why It Matters

ROAS tells you whether your ad spend is pulling its weight. A 1x ROAS means you are breaking even on revenue before any other costs. Below 1x, you are losing money directly on ads. For local service businesses, tracking ROAS honestly requires counting only jobs that were actually closed, not just leads generated. Leads that go unanswered or follow-up attempts that arrive two days late do not count. The advertising may have worked; the process broke down downstream.

Example

A window replacement company spends $2,400 on Google Ads in March. They attribute 8 jobs to that campaign, averaging $1,100 per job. Total attributed revenue: $8,800. ROAS: 3.67x. Their material and labor cost is roughly 60%, leaving a 40% gross margin. At 3.67x ROAS, gross profit from those jobs is $3,520 against $2,400 in ad spend. That is a strong result. If follow-up had been slow and 3 of those 8 leads had gone cold, ROAS would have been 2.29x and the math would have been much tighter.

Related Terms

CAC, LTV, Conversion Rate, PPC, Attribution Model

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