Calculate your true advertising ROI — not just ROAS. Enter ad spend, revenue generated and gross margin to see return on ad spend, net profit after product cost and whether your campaigns are genuinely profitable.
| ROAS | Revenue (£5k spend) | Gross Profit | Net Profit | Verdict |
|---|
ROAS (Return on Ad Spend) is the most quoted marketing metric — and the most misleading in isolation. A 4:1 ROAS sounds impressive, but if your gross margin is 20%, you need at least 5:1 ROAS just to break even on the product cost. Understanding the break-even ROAS for your margin profile, and calculating net marketing ROI after COGS, is the only way to know whether ad campaigns are genuinely profitable.
Break-even ROAS = 1 ÷ Gross Margin. At 35% gross margin: break-even ROAS = 2.86x. At 25% margin: break-even = 4.0x. At 50% margin: break-even = 2.0x. Any ROAS below break-even generates a net loss after paying for the product, even if it looks like revenue is being generated. This is why high-volume, low-margin businesses need dramatically higher ROAS targets than high-margin service businesses.
Marketing Efficiency Ratio (MER) = Total Revenue ÷ Total Marketing Spend across all channels. Unlike ROAS, MER captures blended performance including organic and paid together. A business with 4:1 ROAS on paid but also significant organic traffic has a higher MER. MER is increasingly preferred by DTC brands as a more honest measure of total marketing efficiency.
Acquiring new customers typically has lower ROAS than retargeting existing customers. Track these separately. A new customer ROAS of 2.5x that acquires a customer with £800 LTV is an excellent investment. A returning customer ROAS of 8x on small repeat purchases may contribute less total value. Blended ROAS hides this distinction.
Break-even ROAS = 1 ÷ Gross Margin. At 30% gross margin: you need 3.33x ROAS to cover product costs from ad spend. Add overhead allocation and profit target: most e-commerce businesses target 4:1 to 6:1 ROAS. Below break-even ROAS, every sale makes a loss. Calculate your specific break-even using our calculator before setting campaign targets.
Net Marketing ROI = (Gross Profit from Campaign - Total Campaign Costs) / Total Campaign Costs × 100. Total campaign costs include ad spend, agency fees and any creative costs. Gross profit = Revenue × Gross Margin %. Example: £22,000 revenue × 35% margin = £7,700 gross profit. Minus £5,500 total costs = £2,200 net profit. ROI = £2,200 / £5,500 = 40%.
Depends on your gross margin. At 40% margin, break-even ROAS is 2.5x — so 3:1 is profitable. At 20% margin, break-even is 5x — so 3:1 is a loss. Also consider that ROAS typically declines as you scale (you exhaust your highest-intent audience). Model what happens to profit if ROAS drops to 2.5:1 at 2× spend before scaling aggressively.