What is a Good ROAS for Google Ads?

What is ROAS?

Return On Ad Spend (ROAS) is a measure of how much revenue you generate for every pound, dollar or euro you spend on advertising. For example, if you spend $1,000 on Google Ads and generate $5,000 in revenue, your ROAS is 5x, you are getting $5 back for every $1 spent.

The formula is simple: Revenue divided by Ad Spend.

Use our free ROAS & CPA calculator →

What is a good ROAS?

In short, the higher the number the better.

The minimum ROAS you need depends on your business. If your profit margin is 50%, for example the cost of a sale is £10 and the revenue from a sale is £20, you need at least a 2x ROAS just to break even on your ad spend. Of course you need to be doing more than breaking even, and you don't want ad spend eating up a sizeable chunk of your profit. If you are only making a small margin on each sale you are going to need a much higher ROAS to make your ads worthwhile.

Tools such as Ad Optimiser that track ROAS allow you to set a target that suits your business, which means understanding what ROAS means is critical to evaluating the effectiveness of your ad spend.

As a general guide, most businesses running Google Ads should be aiming for a minimum of 3x to 4x ROAS, with 5x or above being a strong result. If you are getting below this it is worth investigating why.

What about CPA?

You will probably be aware of another key metric, CPA. Unlike ROAS, the lower the number the better. It stands for Cost Per Acquisition but in many cases it actually means Cost Per Conversion.

If your online business is selling cuddly toys for example, it is easier to determine what you can afford to spend per acquisition to ensure that your business is still making a tidy profit. If you are a business such as a Hair Restoration Clinic that is looking to book in consultations that may or may not result in a sale, then you need to be careful that you are not painting a falsely optimistic picture. You need to work out what your conversion rate of consultations to sales is to ensure that you are truly measuring your CPA. Lots of appointments that don't result in any sales cost you in both ad spend and time.

Tools such as Ad Optimiser allow you to enter your CPA target and it will tell you what to do if you are not meeting this target with some campaigns, keywords and terms, but you need to know what a conversion is worth to your business. If your CPA is higher than you expect then you will be prompted to investigate. It may mean the targeting is wrong or the keywords are too broad. It won't tell you how many consultations turned into sales, that is something you need to track yourself, but it will tell you when your ad spend is not performing against the targets you have set.

For most businesses you need to look at both ROAS and CPA to fully understand how well your ad campaigns are working. A low CPA is great but if the enquiries don't convert to actual sales you are still losing money. A high ROAS sounds good but the measure of success needs to be reflected in your profit margins. I did a lot of work with a personal injury law firm, high volume, low margin, so the ROAS needed to be exceptionally high to make the advertising worthwhile.

Why your ROAS might be lower than you think

One of the most common issues is when SMEs running their own ads, and even agencies, focus too much on ROAS alone.

If your website or online business is performing well organically, your ads may be taking credit for sales that would have happened anyway. Ads often appear above organic search results, so if someone searches for your brand name and sees it in an ad first they may click on the ad instead of the organic result and the sale gets attributed to Google Ads. Strip out brand name terms if you want to understand your true ROAS. Ad Optimiser is also able to give you a direct comparison between where your organic search terms are performing well and what you are spending on ads for the same terms.

You may be running ads on keywords you already rank for organically. If someone would have found you through a free search result anyway, the revenue from that sale is not really a return on your ad spend, you would have got it for nothing.

What should you do if your ROAS is too low?

Broad match keywords can inflate click volume but they are not targeted so are unlikely to result in conversions. This drags your ROAS down while making it look like your ads are reaching more people.

If you are not sure where to start, our article on five signs your Google Ads are wasting money covers the most common issues we see with SME campaigns.

You can check your search term report which shows exactly what people were searching for before clicking your ad. Some searches may trigger your ads and get clicks without converting into sales, appointments or enquiries. If you spot this, adding negative keywords is the quickest fix. Ad Optimiser's Keywords page does this automatically. It analyses your search terms and identifies the ones that are costing you money without generating conversions, so you can stop paying for clicks that go nowhere.

As well as looking at keywords you can look at the performance of individual campaigns, which is the next tier up. Ad Optimiser will tell you, based on the ROAS and CPA targets relevant to your business, which campaigns are performing well and which are falling below target. It will also give you advice on how to fix campaigns where performance is mixed.

Broadly speaking you need to reduce spend on the weak campaigns and focus budget on those that are doing well. It can be much more nuanced than that though. Doubling spend doesn't automatically mean doubling ROAS.

One of the main reasons for bounce, where people click through to your website and immediately leave, is landing page relevance. Make sure the page your potential customers land on matches your ads. If someone searches for a specific product or service and lands on a generic homepage, they will leave and you will pay for that click.