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Summary
Return on Ad Spend (ROAS) tells you how much revenue you generate for every pound you invest in advertising. However, the raw ROAS figure can be deceptive. Without context, even a high ROAS can hide losses or stall growth. Whether you run an e-commerce brand, offer professional services, or operate a B2B company, the same principles apply: you need to earn more from a customer than you spend to acquire them. GoGorilla ensures you hit that mark by using our internal unit economics calculator to pinpoint your optimal ROAS based on your product or service economics. In this guide, we will detail the following:
Why ROAS without context can lead to poor decisions
The key unit-level numbers that shape your break-even and ideal ROAS
How the calculator converts those numbers into clear spending limits for your campaigns
A short example that shows how to use the tool
One of the most common and important questions in marketing is: What is a good ROAS? In simple terms, ROAS (Return on Ad Spend) measures how much revenue you earn for every pound spent on advertising. It is calculated by dividing total revenue by ad spend. However, finding and maintaining a profitable ROAS is more complex than it initially appears. Most marketers may rely on the rule of thumb that they need a ROAS above 1 (100%) just to break even. However, pinpointing the ideal level for genuine profit requires looking deeper into your numbers.
What is a good ROAS?
A good ROAS is one that not only covers your advertising costs but also generates enough profit to meet your business goals. There’s no universal magic number when it comes to ROAS. A 10:1 ROAS ratio can still yield losses if margins are razor-thin, whilst a more modest 2.5:1 can fuel steady growth in a high-margin niche. The only way to pinpoint your ideal ROAS is to start with unit economics. This means you should incorporate the pounds you keep after accounting for product, fulfillment, and acquisition costs.
Why undefined ROAS alone can mislead
Undefined ROAS figures can be misleading because they often ignore the true cost behind a campaign. If a business spends £1,000 on ads and brings in £3,000 of revenue, we might immediately think that they have a huge profit since they have a 3x ROAS. This ROAS sounds impressive as it shows that their campaign is profitable. However, when we look deeper on their products and operations, we found that they carry a 25% gross margin. So what’s the impact of this metric? This means that £750 of their revenue vanishes in product costs, and now, the company has only £2,250 to cover the original £1,000 ad spend plus other additional expenses. Without context, a headline ROAS can flatter and easily deceive. Here are other reasons why undefined ROAS alone can mislead:
It ignores product cost: A 200% ROAS may still lose money if there are costs that are neglected and these costs consume more than the generated profit.
It often includes tax: Ad platforms report gross revenue, which may contain VAT. Most companies neglect or forget to account for these taxes.
It tempts under-investment: Chasing very high ROAS targets can throttle growth if you could profit from a lower ROAS that has a positive return.
By contextualising ROAS with unit economics, you can avoid these pitfalls. Incorporating costs, margins, VAT, and desired profit ensures a clear view of whether a campaign truly supports your bottom line.
What is unit economics?
Unit economics refers to the direct revenue and costs associated with a single unit of your business, such as one customer, product, or campaign. These could be a single customer, product sale, or campaign. Two crucial measures of unit economics are the Customer Acquisition Cost (CAC) and Lifetime Value (LTV). If the revenue from each customer (LTV) isn’t comfortably higher than the cost to acquire them (CAC), your marketing spend may be unsustainable. By analysing CAC and LTV, you can see which channels produce the most profitable returns and allocate budget accordingly. For instance, if your paid search ads yield a £20 CAC on a £100 LTV, whilst your paid social ads come in at a £50 CAC on the same LTV, you’ll know to either optimise or shift spending away from paid social.
Determining your ideal ROAS with unit economics
To determine your ideal ROAS using unit economics, we begin by analysing the actual costs and margins behind each sale. Think of it like a miniature profit-and-loss statement for a single average order or customer. By inputting your specific numbers into our calculator, we can find the ROAS at which you break even on an ad campaign and then decide how far above that breakeven point your ideal (target) ROAS needs to be to hit your profit goals.
How it works
Here’s a step-by-step look at how we use our unit economics calculator to determine your ideal ROAS.
Gather Your Data: First, we work with you to compile the core information that drives your profitability. This includes your average order value (AOV), cost of goods sold (COGS), and other key metrics so we know how much profit remains after production costs. We also note any overhead fees that apply to each sale. Getting accurate inputs at this stage is critical for shaping realistic ROAS targets.
Input into the Calculator: Next, we enter these details into our Unit Economics Calculator. By combining revenue data with cost figures, the calculator offers a comprehensive picture of how each sale contributes to your bottom line. This step ensures we move beyond simple ad spend estimates and truly understand the overall financial setup.
Calculate Break-Even ROAS: With your data in place, we then calculate your break-even ROAS. Operating below this threshold results in a net loss, whilst anything above it means you are at least breaking even on acquisition. This calculation is pivotal because it reveals whether your current marketing investments are sustainable or need immediate attention.
Determine Ideal ROAS: Once we know the break-even figure, we identify how much profit you would like to earn on each transaction. If you want an immediate profit, we will aim for a ROAS higher than break-even. This step allows us to tailor your ROAS target based on your unique goals and growth plans.
Calculator variables defined
Before diving into our unit economics calculator, it’s helpful to understand the following key variables we use to compute your ideal ROAS. These definitions clarify why each cost and revenue factor matters and how they collectively influence your final net profit, break-even thresholds, and the ROAS needed to obtain profitable revenue.
Ad Spend: The total amount allocated to paid advertising (e.g. Meta Ads, Google Ads, etc.). If you increase ad spend, you’ll need more revenue to preserve or improve profit margins. Spending less may protect profit but risks limiting conversions and total revenue.
Overhead Fee: A fixed or recurring expense covering platform subscriptions, general staff costs, and similar essentials. It’s deducted from gross profit after direct costs, meaning even profitable sales can fall below break-even if overhead is high and conversion volume or pricing isn’t sufficient.
Management Fee: The amount paid to an agency or consultant (e.g. GoGorilla) to run marketing campaigns. Factoring it in ensures you capture the true cost of advertising. Higher fees require a higher ROAS to maintain profitability.
Number of Conversions: The total successful actions (e.g. purchases, sign-ups) generated by a campaign. When ad spend is fixed, increasing conversions or boosting Average Order Value (AOV) usually improves profit.
Average Order Value (AOV): The average revenue per sale. A higher AOV lets you afford higher acquisition costs while remaining profitable, since each sale contributes more to the bottom line.
Cost of Goods (COGS) per unit: Direct production or sourcing expenses for each product sold (e.g. materials, manufacturing). Lower COGS improves your gross margin, allowing more ad spend before hitting break-even.
Cost of Delivery per unit: Per-order costs like shipping, packaging, or digital platform fees. Including these ensures accurate profit calculations by reflecting each sale’s true expenses.
Refund Rate (%): The portion of orders canceled or returned. These lost sales reduce actual revenue and can also partially recover COGS. Adjusting for refunds prevents overstating how much you truly earn from advertising.
Tax Rate (%): Represents taxes such as VAT. If your prices are tax-inclusive, reported revenue might appear higher than what you actually keep. Applying the tax rate to post-refund revenue gives you a more accurate picture of net revenue.
Profit Target (% of Total Revenue): The percentage of top-line revenue you aim to retain as net profit. A high profit target means you allocate less revenue to costs, requiring a higher ROAS to meet that margin.
Gross Revenue: The total revenue from all completed sales. It’s the maximum possible amount available to cover costs and yield profit.
Post-Refund Revenue: The actual revenue after deducting refunded transactions. It prevents inflated revenue figures and shows what you realistically keep before taxes and other expenses.
Net Revenue: Revenue remaining once taxes are subtracted from post-refund revenue. This becomes your baseline for further deductions like overheads and ad costs.
Gross Profit: Revenue left after direct costs (COGS, delivery) but before overhead fees and other expenses. A higher gross profit means more flexibility to cover additional costs whilst remaining profitable.
Net Profit: Your final profit after subtracting all expenses, including overhead, management fees, and ad spend. If net profit is negative, you’re losing money under the current setup; if positive, you have a viable margin.
Gross ROAS: A broad look at how effectively ad spend drives total revenue, ignoring refunds and taxes. If gross ROAS doesn’t exceed your break-even threshold, you’re not recovering your ad spend plus associated costs.
Net ROAS: A more conservative measure that calculates retained revenue (post-refunds and taxes) per pound of ad spend. It reflects true campaign efficiency by including real-world deductions.
Our unit economics calculator
Here’s an example of our unit economics calculator, where we enter your actual business data, including ad spend, conversions, overhead, and direct costs. The more realistic your inputs, the more accurate your results. Whether you want to break even or aim for a larger profit margin, this tool pinpoints the exact revenue-to-ad-spend ratio (ROAS) you need to achieve your goals.
Sample case scenario
Below is a sample scenario that demonstrates how we use our unit economics calculator to identify a clear ROAS target and adjust your metrics to achieve your ideal profit:
Acme Company is a small, boutique clothing brand in Bristol specialising in eco-friendly streetwear. Founded by two college friends, they source sustainable fabrics and use green packaging to reduce their carbon footprint. Determined to expand, they decided to scale up their marketing efforts, plunging £2,000 into Meta ads last month and hiring a marketing agency on a £300 management fee. They hope to gain 120 new subscribers at £50 each.
Initially, the agency reported a 3× Raw ROAS, meaning that for every £1 in ad spend, they saw £3 in top-line revenue. However, the founders felt the numbers didn’t quite add up. Despite hitting that revenue ratio, money was tight. Their COGS remained at £13 per unit and COD at £3. As end-of-month bills rolled in, Acme Company saw they were still short on covering an overhead of £500. They can’t help but wonder what went wrong since they are hitting the key metrics. Concerned, Acme Company ended the agency partnership, tried managing campaigns in-house, and soon realised the numbers still did not translate into profit.
Looking for clearer answers, the founders partnered with GoGorilla to outsource their paid advertising. When GoGorilla ran Acme Company’s figures through their unit economics calculator, they discovered the true cause of their shortfall. After refunds, taxes, COGS, delivery, and overhead were all accounted for, their Net ROAS fell well below the break-even point. Much of the “revenue” reported by their agency wasn’t turning into actual retained income.
Turning numbers into strategy
Break-even and ideal ROAS figures serve as benchmarks, not end goals. GoGorilla converts these numbers into practical value by setting measured bid caps, selecting the most effective channels, and pacing budget for sustainable growth. Our unit economics calculator processes the data and delivers concise, data-driven insights you can act on.
If you are facing similar challenges, we can help pinpoint your ideal ROAS and refine every aspect of your strategy to reach it. Explore our paid advertising service to learn how GoGorilla can turn your numbers into profitable growth. You can also forecast profit, estimate monthly fees, and model different spend scenarios in our pricing calculator by clicking the button below.
