# Maximize your Google Ads ROI with our free tool.

## Understanding and Calculating ROAS

Every click is potential cash. In SEM, ROAS is a useful metric to help you measure the impact of these clicks and uncover how well your ads are doing so you can either continue with the same strategy or know it’s time to pivot. Let's break it down together.

**1. What is ROAS?**

ROAS stands for Return on Ad Spend. Essentially, it shows what you get back from the money you put into your ads. Think of it like this: If you spend $10 on ads and get $30 back in sales, your ROAS tells you that you’re doing a good job.

**2. Why ROAS is important**

ROAS is a key metric to determine if your ad campaign is successful or not. We want our ads to make us money, and we should be able to see the impact of what we’re spending. Here are a few other reasons why we talk so much about ROAS:

**Budget**: ROAS helps you figure out where to put your ad money for the best results.**Performance**: It lets you compare how ads on different platforms (like Facebook, Instagram, and Google) are doing.**Adjustments**: Understanding your success stories (or busts) can impact your trajectory. ROAS guides you to shift your budget based on what's working best.

**3. ROAS vs. ROI**

ROAS can often be confused with ROI (Return on Investment), but there are some key differences. ROI looks at all costs, like what you spent to make your product and pay your team. ROAS, however, is just about ad spend and the money you make from those ads. Think of ROI as your long game; it can be applied to any investment, while ROAS is your quick check on ad performance that is reserved for advertising.

**4. ROAS is simple math**

Here's the ROAS formula. Though it seems uncomplicated, it can paint a good picture of how your advertising is doing.

- ROAS = Revenue from Ads ÷ Money Spent on Ads.
- In simple math, if you spend $100 on ads and make $400, your ROAS is 400%.

**5. Real-life ROAS example**

Imagine you have manufactured a cool new kind of fork and want to sell it online. You spend $1,000 on Facebook ads and those ads sell 3,000 forks at $1.50 each. Now you've made $4,500. Your ROAS? 450%. That's $4.50 back for every $1 you spent. Not a bad investment!

**6. Handy ROAS tools**

We’ve created a helpful ROAS calculator here that is also easy to use. Just input your numbers and it will determine your ROAS for you. Ad spend calculators are another useful tool for planning your budget across platforms.

**7. What's a good ROAS?**

This is a great question that we get a lot. And it might be worth a blog post itself. In short, a “good” ROAS can vary but we recommend aiming for at least 3.5 (350%). There are definitely some exceptions and different philosophies, and your profit margins might impact what you can spend/what your target ROAS is. Essentially, higher ROAS means your ads are working harder for you. But for some of the more unique ad spend scenarios, we are also here to help understand what your ROAS goal should be.

**8. How does my ad budget determine ROAS?**

Your ad budget depends on your cost per click (CPC) and what that’s going to end up returning you. We can see how these numbers depend on each other with a little more math:

- In the fork example above, if your CPC is $5 and you have a $500 budget, you will only get 100 clicks.
- If you have a 10% conversion rate, these 100 clicks should produce 10 leads. The cost per lead here is $50 ($5*10 leads).
- Out of those leads, what’s the closing rate? If you close 50%, now you have 5 new clients.
- Next, we look at the average order value (AOV), which is the average amount of money someone spends per order with you. If our fork manufacturer had an AOV of $100, now they’ve broken even ($100*5 new clients = their $500 budget). If it was $200, they’d make $500. And since their budget was $500, this gives them a 2 ROAS ($1,000 made divided by the $500 ad budget).

Your ad budget depends on this entire funnel. If your conversion rate and close rate etc. are really healthy and there’s a high search volume, this gives you a lot more wiggle room to spend on advertising.

## Want to know how we got to those numbers?

Check our math.

**Number of clicks** = Projected Monthly spend / Expected CPC

Example: $5000 monthly spend / Expected CPC $5 = 1000 clicks

**Number of leads =** Number of clicks * Conversion rate

Example: 1000 clicks * conversion rate of 10% (.1) = 100

**Cost per lead =** Projected Monthly Spend / Numbers of leads

Example: Project Monthly spend $5000 / 100 Number of leads = $50

**Pipeline Value =** Number of leads * Average Sales Price

Example: 100 Number of leads * $1000 Average Sales Price = $100,000

**Expected Revenue** = Pipeline Value * Lead to Customer Ratio

Example: $100,000 Pipeline Value * 50% (.5) Lead to Customer Ratio = $50,000

**ROAS =** Expected Revenue / Projected Monthly Spend

Example: $50,000 Expected Revenue / $10,000 Projected Monthly Spend = 5x ROAS

Another Example: $45,000 / $10,000 = 4.5 ROAS