ROAS (Return On Ad Spend) is the ratio between the sales revenue a campaign brought in and what was spent on it in advertising, and it measures revenue, not profit. So a campaign with an impressive ROAS can lose money, and a campaign with a modest ROAS can be the most profitable in the account. An online store that wants to manage advertising by profit needs to calculate break-even ROAS for each category, bring costs and returns into measurement, and separate new customers from returning ones.
In brief
- ROAS מודד הכנסה. It doesn't know how much the product cost, how much was returned, or how much shipping and payment processing cost.
- לכל מוצר יש רף משלו. Break-even ROAS depends on the margin, and a low-margin product needs a much higher target.
- מדדי רווח משלימים את התמונה. POAS and contribution after advertising show what stays in the till, not just what comes in.
- לקוח חדש או חוזר. Separating them gives a better view of what the campaign added to the business. However, a new customer is not necessarily more profitable, so it's worth checking their value over time too.
What is ROAS and how is it calculated?
ROAS is calculated as the sales revenue attributed to the campaign divided by that campaign's advertising cost. If a campaign cost ₪1,000 and brought in ₪4,000 in sales, its ROAS is 4, or 400%.
Both forms are common. Google Ads, for example, expresses target ROAS as a percentage: the conversion value you want to receive for each unit of spend, multiplied by 100. So a target of 500% means five shekels of sales for every shekel of advertising. Other systems show the same metric as a simple ratio.
It's important to remember where the number comes from. The revenue in ROAS is what the advertising system attributed to the campaign, according to its attribution model and conversion window. When several systems run in parallel, each may attribute the same order to itself, so the total revenue the systems report can exceed the sales actually recorded in the store. It's also worth deciding once whether revenue is counted before or after VAT, with or without shipping, and staying consistent.
Why doesn't a high ROAS always mean profit?
Because ROAS counts every shekel of revenue as the same shekel, regardless of what remains of it after costs. Here's what it doesn't see:
- רווחיות המוצר. A sale of a low-margin product counts exactly like a sale of a high-margin product.
- החזרות וביטולים. Revenue is counted on the day of purchase, even if the product comes back a week later.
- משלוחים, הנחות וסליקה. Coupons, free shipping and payment processing fees reduce what actually remains.
- לקוח חדש או חוזר. A campaign that mainly brings customers who would have bought anyway may look excellent and contribute little.
The result is that advertising systems, which receive only the order value, aim at revenue and not necessarily at profit. They may favor products that sell easily, even if they leave little money, over profitable products that convert less easily. To change this, you need to change what the system receives, and the goal it is given.
What is break-even ROAS and how is it calculated?
Break-even ROAS is the minimum ROAS at which sales cover the product cost, the order's variable costs and the advertising, with neither profit nor loss. It is calculated as the sale price divided by what remains of the sale before advertising.
For example, a product that sells for ₪200. All amounts in the example are hypothetical, rounded and before VAT:
- Product cost: ₪80.
- Shipping and packaging: ₪20.
- Payment processing fee: ₪6.
- What remains before advertising: 200 minus 106, i.e. ₪94.
- Break-even ROAS: 200 divided by 94, i.e. about 2.13, or roughly 213%.
The calculation includes only product cost, shipping and packaging, and the processing fee. It excludes returns, discounts and fixed costs such as salaries, rent and systems, so the result is contribution, not net profit. In practice: in a campaign with a 300% ROAS, every ₪1,000 of advertising brings ₪3,000 of sales, which is 15 units. They leave ₪1,410 before advertising, and after advertising a positive contribution of ₪410 remains. In a campaign with a 200% ROAS, the same ₪1,000 brings 10 units that leave ₪940, a negative contribution of ₪60, even though the number looks like doubling the money.
Now take another product at the same price, but with a cost of ₪140. After shipping and processing only ₪34 remains, and break-even ROAS jumps to about 5.9. A campaign with a 400% ROAS on this product, which looks excellent in the report, loses money on every sale.
Returns raise the bar even further. If some orders are returned, their revenue disappears while the handling cost remains. So the calculation is best done by category or product group, with its actual return rate, rather than one average for the whole store.
What is the difference between ROAS, POAS and profit-based metrics?
POAS (Profit On Ad Spend) is the profit from sales before advertising, divided by the advertising cost. Unlike ROAS, it takes product cost into account, so a POAS above 1 means the campaign left a positive contribution even after advertising, before fixed costs.
In the example above, the campaign with a 300% ROAS left ₪1,410 before advertising on a spend of ₪1,000, i.e. a POAS of 1.41. There are several ways to calculate the profit in the numerator: some stores subtract only product cost, and some also subtract shipping, processing and returns. The full version is more accurate, and it's important to choose one and stick with it. Contribution after advertising is the amount in shekels that remains after product cost, variable operations and advertising. It is still not net profit, because fixed costs are not included, but it is relatively easy to present to management.
| Metric | What it measures | What it misses | When it is useful |
|---|---|---|---|
| ROAS | Revenue for every shekel of advertising | Costs, returns, new or returning customer | Quick comparison between campaigns with similar margins |
| Break-even ROAS | The threshold below which the campaign loses money | It doesn't measure performance, it only defines a target | Setting a target for each category or product group |
| POAS | Profit before advertising for every shekel of advertising | Customer value over time | A catalog with very different margins |
| Contribution after advertising | How many shekels remained after product, operations and advertising | The relationship between different channels | Reporting to management and budget planning |
| New customer acquisition cost | What it cost to bring a customer who hadn't bought before | Profitability of the first order | Campaigns aimed at growth |
| Customer lifetime value | How much a customer earns for the store over a period | Arrives late and requires historical data | Products with repeat purchases |
How do you set a profit goal in Shopping and Performance Max campaigns for e-commerce?
Set a profit goal in three steps: feed the system values that reflect the business, set a ROAS target according to each product group's break-even point, and make sure the product feed is accurate. A Shopping campaign shows product ads from the catalog, and Performance Max is a Google campaign type that runs the same budget across several channels in parallel.
Target ROAS and value-based bidding
Target ROAS is an automated Google Ads bidding strategy that estimates the expected value of each conversion and raises or lowers the bid accordingly. According to Google, value-based bidding is especially useful when different conversions have different value to the business, which is exactly the situation in a store with different margins. Google recommends accumulating enough value data before setting a target, and cites requirements or recommendations for a minimum conversion volume, which vary by campaign type and are updated from time to time. It also warns that an overly high target may limit traffic, and suggests conversion value rules to increase the value of more valuable customers, devices or locations.
What the feed needs to include
A product feed is the file that passes the catalog details to Google Merchant Center: ID, title, description, link, image, availability and price. According to Google's specification, the title should describe the product accurately and match the landing page, without promotional text such as "free shipping" and without all caps. Price and availability need to match what appears on the site and at checkout, and the image should show the product itself, without promotional text or a watermark. The minimum image size requirements and their enforcement dates are worth checking in the current specification, as they are updated from time to time.
The specification also includes an optional attribute called cost_of_goods_sold, the product's cost of goods sold. When it is provided and conversion tracking with cart data is enabled in Google Ads, the system can calculate gross profit from the sales the ads brought in. The condition is that the product IDs in the conversion tag match the IDs in the feed exactly. Beyond that, a well-organized feed makes it possible to divide the catalog into groups by profitability, and give each group its own budget and target.
And on Meta?
On Meta, the equivalent bidding strategy appears in the developer documentation as Lowest cost with min ROAS, in which you set a minimum ROAS floor. In the Ads Manager interface its name may differ. According to Meta's documentation, it is built on value optimization and suits cases where transaction values can be passed to the system. Meta warns that an overly high floor may cause under-delivery, so here too it's worth deriving the target from the break-even point.
How do you separate new customers from returning ones, and why does it matter?
Because a sale to a customer who would have bought anyway adds little, while a sale to a new customer can expand the customer base. However, a new customer is not necessarily more profitable: their acquisition cost is usually higher, and the first order doesn't always cover it. Returning customers are an asset, and can often be reached through cheaper channels such as email and direct marketing.
Google Ads makes it possible to set a new customer acquisition goal, with three modes: bidding higher for new customers, bidding higher for high-value new customers, or bidding for new customers only. Existing customers are defined using first-party data, such as a customer list and a site tag. The availability of each mode varies by campaign type, so it's worth checking it in Google's Help Center before setting it up.
Customer lifetime value (LTV) is the profit a customer brings to the store over a period, not just in the first order. For some products the first purchase is barely profitable, but the customer comes back and buys again. In such cases a lower ROAS on the first purchase can be considered, provided the data shows these customers really do return.
Four questions to check every month
- כמה נשאר? What is the profit from the sales the campaigns brought in, after costs and returns.
- מי קנה? What share of buyers were new customers.
- מה מקבל תקציב? Whether the profitable products get the exposure they need.
- האם הנתונים נכונים? Whether conversion values, costs in the feed and prices are up to date.
How we approach this at CONNECT
At CONNECT, part of the Bruckner Yaar Levi advertising group, work with an online store usually starts with the economics of the catalog, before the ads. Together with the store we calculate break-even ROAS for each main category, review the feed and conversion value settings, and divide the catalog into groups by profitability. Only then do we set campaign targets, and report on contribution after advertising and on new customers alongside ROAS.
Because value-based campaigns respond quickly to changes in the data, it's important to identify anomalies in performance and spend pacing early. For that we maintain ongoing monitoring of the accounts.
Frequently asked questions
What is ROAS in simple terms?
ROAS is how many shekels of sales came in for every shekel invested in advertising. If a campaign cost ₪1,000 and brought in ₪3,000 in sales, the ROAS is 3, or 300%. It's a simple metric that is easy to compare, but it measures revenue only. It doesn't take into account product cost, shipping, processing or returns, so it doesn't tell you whether the campaign really made a profit.
What counts as a good ROAS?
There is no single number that's right for every store. A good ROAS is one that is higher than the break-even point of the products the campaign sells. A high-margin product can be profitable even at a relatively low ROAS, and a low-margin product can lose money even at a ROAS that looks high. So it's worth calculating the break-even point for each category, and setting separate targets accordingly.
What is the difference between ROAS and ROI?
ROAS compares revenue to advertising spend only. ROI, return on investment, compares profit to the total investment, after all costs. A campaign can show a high ROAS and still a negative ROI, if product, operating and return costs are high. ROAS is convenient for day-to-day campaign management, and ROI is better suited to the question of whether the whole activity pays off for the business.
What is POAS and how is it calculated?
POAS is the profit from the sales a campaign brought in, before advertising, divided by the advertising cost. It is calculated by subtracting product cost, and where needed also shipping, processing and returns, from revenue, and dividing by advertising spend. A POAS above 1 means the campaign leaves a positive contribution after advertising, before fixed costs. To calculate it on an ongoing basis you need cost data for each product, for example in the product feed.
Is Performance Max suitable for e-commerce?
Performance Max can suit an online store, especially when there is a quality product feed, accurate conversion values and enough data for value-based bidding. It supports a ROAS target and a new customer acquisition goal. On the other hand, it runs across several channels in parallel, so it's important to set its targets by break-even point, divide the catalog by profitability and regularly check which products are getting the budget.
ראו גם: E-commerce Performance · Performance Campaigns · Data & Measurement · איך קוראים דוח קמפיין · פרטיות ומדידה
Sources: Google Ads Help – About Target ROAS bidding · Google Ads Help – Customer acquisition goal · Google Ads Help – About conversions with cart data · Google Merchant Center Help – Product data specification · Meta for Developers – Bid Strategy
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