What is ROAS?
Return on ad spend: the revenue generated for every rupee spent on advertising, expressed as a multiple.
ROAS = Revenue / Ad Spend
A worked example
You spend Rs 50,000 on Meta ads in a month and the campaign is credited with Rs 1,75,000 in revenue. Your ROAS is 3.5, meaning every rupee of ad spend returned three and a half rupees of top-line revenue. Note what that figure does not tell you: whether you made any money.
Why it matters
ROAS is the number most brands run their advertising on, and it is the number most brands misuse. It measures revenue, not profit, so a ROAS target borrowed from someone else's business is close to meaningless. The only useful ROAS target is the one derived from your own contribution margin.
Work out your break-even ROAS before you set a target. Take your selling price, subtract cost of goods, shipping, packaging, payment gateway charges, expected returns and any marketplace commission. What remains is your contribution margin. Break-even ROAS is simply 1 divided by that margin expressed as a decimal. At a 45 per cent contribution margin, break-even sits at roughly 2.2. At 20 per cent, it is 5.0.
That is why two brands can report the same ROAS and be in completely different situations. A 3.5 ROAS at 45 per cent margin is a healthy business. The same 3.5 at 20 per cent margin is losing money on every order while the dashboard shows green.
The nuance most people miss
Platform-reported ROAS is not your ROAS. Meta and Google both count conversions within their own attribution windows, including view-through conversions and purchases that would have happened anyway. In India there is a second layer of distortion: return-to-origin. If a fifth of your cash-on-delivery orders never complete, the revenue in your ads dashboard includes money you will never see. Always reconcile platform ROAS against delivered, paid-for orders in your backend, and expect the real number to be materially lower.
Indian D2C brands commonly target somewhere between 2.5 and 4.0 blended, but this is only a useful reference point if your margin structure resembles theirs. Derive your own break-even first.
Common mistakes
- Treating a ROAS benchmark from a blog post as a target instead of deriving it from your own contribution margin
- Using platform-reported revenue rather than backend order data
- Ignoring return-to-origin, which can quietly erase an apparently healthy ROAS
- Optimising campaigns to the highest ROAS rather than the highest total profit: a tiny, highly efficient campaign often makes less money than a larger, less efficient one