What ROAS means
ROAS stands for return on ad spend. It tells you how much revenue a campaign generated for every dollar you put into it. The formula is short:
ROAS = revenue from ads / ad spend
A campaign that brings in $5,000 on $1,250 of spend has a ROAS of 4x. You earned $4 of revenue for every $1 of ad spend. It is the first number most advertisers check because it is the easiest to pull from a Facebook or TikTok dashboard.
How to read your ROAS
The trap with ROAS is that it counts revenue, not profit. A 4x ROAS sounds healthy, but if your product costs, shipping, and fees eat 80% of each sale, you needed a higher number just to break even. ROAS only tells you whether a campaign is winning once you compare it to your break-even ROAS.
So the right way to read the number is in two steps:
- Calculate the ROAS the campaign actually delivered (the tool above).
- Calculate your break-even ROAS from your margin, then check whether you cleared it.
If your ROAS is above break-even, the campaign makes money. If it is below, you are paying to acquire sales at a loss, no matter how high the raw number looks.
A worked example
Say you sell a product for $50. Over a week you spend $1,000 on Facebook ads and the campaign drives $3,500 in sales.
- Revenue from ads: $3,500
- Ad spend: $1,000
- ROAS = 3,500 / 1,000 = 3.5x
Now suppose your product and fulfilment cost $30 per $50 sale. Your margin is 40%, so your break-even ROAS is 2.5x. Because 3.5x clears 2.5x, this campaign is profitable. Drop the selling price or raise the product cost and that gap narrows fast.
Where to find the inputs for a competitor
You can only model a campaign if you know what a store sells things for. Koala Inspector is the Chrome extension media buyers use to see the live ads, best-selling products, and pricing on any Shopify store. Pull a competitor's price and product cost signals, drop them into the break-even tool, and you know the ROAS they need before you ever test the niche.
