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Learn moreWhat is ROAS (Return on Ad Spend) and What’s Actually Good?
You Asked
What is ROAS and what’s a good number?
We Answer
ROAS is simple. Understanding it properly isn’t.
ROAS (Return on Ad Spend) is one of the most commonly used metrics in digital marketing. It’s often the first number business owners ask about and the one most agencies report on.
But here’s the issue:
Most businesses focus on ROAS… without fully understanding what it actually means.
What is ROAS?
ROAS is calculated as:
Revenue ÷ Ad Spend
For example:
If you spend $2,000 on ads and generate $10,000 in revenue, your ROAS is 5x.
Simple.
But while the calculation is straightforward, the interpretation is where things start to go wrong.
So, What is a “Good” ROAS?
This is where most people expect a clear answer.
The reality is:
There is no universal “good” ROAS.
What’s considered good depends on:
» Your margins
» Your business model
» Your growth stage
» Your operating costs
A 5x ROAS might sound strong but if your margins are tight, it may not be profitable.
A 2x ROAS might look low but if your margins are high, it could be highly profitable and scalable.
Concept: High ROAS ≠ High Profit
SCENARIO A — High ROAS (Looks Good)
Revenue: $10,000
Ad Spend: $2,000
ROAS: 5x
Costs:
COGS: $6,000
Overheads: $2,500
Profit: -$500 ❌
SCENARIO B — Lower ROAS (Actually Better)
Revenue: $6,000
Ad Spend: $3,000
ROAS: 2x
Costs:
COGS: $2,000
Overheads: $1,500
Profit: $500 ✅
Why ROAS Can Be Misleading
ROAS only measures revenue against ad spend.
It doesn’t account for:
» Cost of goods
» Overheads
» Staff costs
» Fulfilment
» Long-term customer value
This is where businesses get caught.
They optimise for higher ROAS, thinking it equals better performance when in reality, they may be limiting growth or even reducing profit.
The Bigger Picture: ROAS vs Business Outcomes
The most effective digital strategies don’t optimise for ROAS alone.
They consider:
» Profitability not just revenue
» Customer acquisition cost (CAC)
» Lifetime value (LTV)
» Blended performance across channels
This matters because marketing doesn’t exist in isolation it needs to support the business as a whole.
As search and digital channels evolve, the focus is shifting away from single metrics and toward holistic performance and outcomes, not just clicks or returns.
How to Use ROAS Properly
ROAS is still a valuable metric when used correctly.
It should be treated as:
» A directional indicator, not the final answer
» A way to compare campaigns and channels
» A tool to identify where performance can be improved
But it should always be viewed alongside broader business metrics.
Final Thoughts: Focus on What Actually Matters
The goal of digital marketing isn’t to maximise ROAS.
It’s to build a system that generates consistent, profitable growth.
ROAS is part of that system but it’s not the system itself.
So instead of asking:
“What’s a good ROAS?”
A better question is:
“Are we growing profitably, and can we scale?”
About NZ Digital
NZ Digital is an Auckland-based digital marketing agency specialising in lead generation, paid advertising, SEO, and digital strategy. If you’d like help understanding your performance or improving your results, get in touch for a strategy session.
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