The ROAS Number You Should Actually Target
Category
Paid Media
Published by
Tom Emmanuel
Read Time
5 Minutes
A 4x ROAS sounds healthy. Whether it is depends entirely on your unit economics, and in the UK on a VAT detail that quietly moves the answer by about a fifth.
Tom Emmanuel
Founder, Furnace Commerce
Why a good ROAS is brand-specific
ROAS is just inverted ACOS
A 3x ROAS is a 33% ACOS. They are the same number expressed two ways, which is why brands running Amazon and Meta side by side often argue past each other about the same performance.
The VAT adjustment
Ad platforms report UK revenue inclusive of VAT, so ROAS is measured on the gross price. Your margin is earned on the net. Ignore it and your breakeven ROAS looks around 20% better than it is.
Contribution is the only input that matters
Breakeven ROAS is the sell price divided by contribution after fees, fulfilment, goods and returns. A product with a 40% contribution margin breaks even at 2.5x. One at 20% needs 5x for the same outcome.
Target margin sets the real number
Breakeven is the floor, not the goal. Working back from the net margin you actually need usually produces a target considerably higher than the one most brands are running to.
Two products in the same catalogue can legitimately need a 2.5x and a 5x target. A single account-level ROAS goal applied across both guarantees you overspend on one and underinvest in the other.
Using the number properly
Blended, not platform-reported
Platform-reported ROAS counts attributed revenue generously and each platform claims the same sale. Blended return, total ad spend against total revenue, is the only figure that reconciles to your P&L.
Allow launch products to run below it
New products should be allowed to run under breakeven while they build rank and reviews, with a defined window and a defined ceiling. Unbounded, that becomes a permanent subsidy.
Judge the account after returns
A campaign at target ROAS on a product with a 20% return rate is losing money. Returns belong in the target, not in a separate report reviewed at quarter end.
Change one thing at a time
Bid, budget and target changes made together cannot be attributed. Change one, wait for attribution to settle, then read the result.
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