Return on ad spend (ROAS) measures how much revenue each unit of ad spend brings back, according to whatever attribution the platform or your analytics uses. A ROAS of 4:1 (or 400%) means four dollars of attributed revenue for every dollar spent. It ignores costs other than media, so it is not the same as profit or return on investment.
The formula
ROAS = Attributed revenue / Ad spend
Example: $20,000 / $5,000 = 4.0 (or 400%)Why ROAS is awkward for SaaS
Ecommerce sees revenue at checkout, so ROAS is available within hours. A SaaS company sees revenue weeks or months after the click, spread across a subscription. Teams handle this in a few ways: assign a value to each funnel stage based on historical close rates, import pipeline or closed-won values from the CRM, or use first-year contract value as the revenue figure.
Whichever method you choose, write it down. ROAS figures built on different revenue definitions cannot be compared.
Reading ROAS carefully
Platform-reported ROAS uses each platform’s own attribution and tends to credit itself generously, especially for retargeting and brand search where the buyer may have converted anyway. Compare platform numbers against your CRM and, where possible, against incrementality tests such as holdouts.
- Separate brand and non-brand campaigns before judging ROAS.
- Check which attribution model and window the figure uses.
- Pair ROAS with volume: a high ratio on tiny spend may not scale.
Example
Assigning value to demos
Hypothetical company Saltreed knows from its CRM that a qualified demo eventually becomes a customer at a steady rate, and what a typical first-year contract is worth. It assigns each qualified demo a value based on those two numbers, imports qualified demos to Google Ads with that value, and switches to a target ROAS strategy once it has enough conversions.
Common mistakes
Treating ROAS as profit
ROAS ignores salaries, tools, cost of service and churn. A campaign can show a strong ROAS and still lose money.
Questions
It depends on margins, payback targets and how revenue is defined. Work out the ROAS at which a campaign pays back within your target period, and use that as your floor.
