ROAS
What Is ROAS? The Definition and Formula
ROAS means return on ad spend. Formula: revenue from the ads ÷ ad spend. Revenue $20,000 on $5,000 of ads is a ROAS of 4.0, sometimes written 400%.
The Trap for a Home-Service Business
ROAS counts revenue. Revenue is not what is left. Between the customer's payment and your pocket sit the parts and the sub's cut.
Example, made-up numbers. Revenue $20,000. Parts and the sub's cut take $16,500, so $3,500 is left. Ads cost $5,000.
| Step | Example |
|---|---|
| Revenue | $20,000 |
| Ad spend | $5,000 |
| ROAS (revenue ÷ spend) | 4.0 |
| Left after parts and the sub | $3,500 |
| Left after the ads are paid for | -$1,500 |
The ROAS looks healthy. The month lost $1,500. This is the gap between ROAS and what you kept.
ROAS Versus ROI
ROI is profit divided by cost: (what was left minus the ads) ÷ the ads. In the example, (-$1,500) ÷ $5,000 = -30%. ROAS never goes negative. ROI can.
How It Is Usually Miscounted
- Using the platform's conversion value. If someone typed a value of $100 per lead, ROAS is built on a guess. Use money collected.
- Counting revenue as profit. It is not.
- Mixing sources. Use the revenue from the jobs that came from those ads.
In HeadHoncho, Profit after leads and Return per lead on Statistics show what was left after the sub and the ads, so you can see past ROAS.
Related Terms
Cost per lead, offline conversion. The full method is in How to Tell Whether Your Ads Are Making You Money.