When running Google Shopping campaigns, tracking your Return on Advertising Spend (ROAS) is essential. It helps ensure your advertising is profitable and provides a straightforward way to measure the revenue generated for every dollar spent on ads.
🎯 Why ROAS Matters
Focusing on ROAS allows you to:
- Measure Performance Effectively
ROAS provides a precise understanding of whether your ad spend is generating sufficient revenue. It goes beyond basic metrics like clicks and impressions, focusing on actual return. - Make Data-Driven Bid Adjustments
With a clear ROAS target, you can confidently adjust bids across devices, schedules, and product groups. Products with higher profit margins can handle more aggressive bidding, while low-margin items may require a more cautious approach.
📐 How to Calculate ROAS
ROAS is calculated by dividing your revenue by your ad spend.
Example:
If you earn $1,000 in sales and spend $200 on ads, your ROAS is 5. This means you’re making $5 in revenue for every $1 spent, equivalent to a 500% ROAS.
Is the above not something you can directly calculate? Then check out the table below.
Another example is using a profit value. Let’s say for every product you sell via advertising, you want to earn $5 in profit. We aim to reduce the product’s cost, thereby increasing the baseline profit. We know we want to keep $5 as profit. By lowering the baseline profit by $5, you must add additional spending. Then, the ROAS is calculated by dividing the baseline profit by ad spend.
Now we know with the chess set below in the table, we can have a target of 1.22 or in other words, we know we can spend $22.49
| sku | name | Price | Cost | Base Profit | Profit Value | Add Spend (Base Profit – Profit Value) | ROAS |
| Sku0 | Chess Set | $49.99 | $22.50 | $27.49 | $5.00 | $22.49 | 1.22 |
| Sku1 | Snakes and Ladders | $49.99 | $26.00 | $23.99 | $5.00 | $18.99 | 1.26 |
| Sku2 | Connect Game | $34.99 | $17.49 | $17.50 | $5.00 | $12.50 | 1.40 |
| Sku3 | Dominoes Set | $52.99 | $31.00 | $21.99 | $5.00 | $16.99 | 1.29 |
| Sku4 | Garden Tennis Set | $29.99 | $15.20 | $14.79 | $5.00 | $9.79 | 1.51 |
| Average ROAS | 1.33 |
💡 Expanding ROAS to Include Other Conversion Types
While tracking sales is vital, many businesses also benefit from other conversion actions such as quote requests, contact form submissions, phone calls, or newsletter signups. These should also be considered when evaluating your return.
Here’s how to do it:
- Determine the average value of a completed sale.
For example, if you generate $25,000 from 30 sales, your average sale is worth around $833. - Estimate the conversion rate from leads to sales.
If you receive 100 calls and 2.5% result in a purchase, that’s 2.5 sales. - Calculate the value of each lead.
Multiply your average sale value by the conversion rate:
$833 × 2.5% = approximately $20.82 per lead.
Assigning estimated values to non-transactional conversions enables you to include them in your ROAS calculation, providing a more accurate representation of campaign performance.
✅ Best Practices to Improve ROAS
| Strategy | Benefit |
|---|---|
| Set ROAS goals by product or category | Focus your budget where it matters most |
| Include all valuable actions in conversion tracking | Don’t underestimate the value of non-sales conversions |
| Use both Google Ads and Google Analytics | Get a complete view of your return across channels |
| Adjust bids based on margins | Spend more on high-margin products to boost profitability |