Return on Ad Spend (ROAS) — The amount of revenue generated for every dollar spent on advertising.
What Is ROAS?
ROAS is usually written as a ratio, like 4:1, meaning $4 of revenue for every $1 spent on ads. It measures revenue efficiency, not profit, which is the detail most beginners miss.
How to Calculate ROAS
Formula: Revenue From Ads ÷ Ad Spend. Spending $500 on ads that generate $2,000 in revenue gives a ROAS of 4.
Why ROAS Matters for Dropshippers
A high ROAS can still be unprofitable if margins are thin. A 4:1 ROAS on a product with a 20% margin leaves much less real profit than the same ratio on a product with a 50% margin.
FAQ
What's a good ROAS for dropshipping?
It depends on your margin — a store with thin margins needs a higher ROAS to be profitable than a store with high margins, so there’s no single universal target.
Is ROAS the same as profit?
No — ROAS measures revenue generated per ad dollar, not profit. A high ROAS can still be unprofitable if the underlying margin is thin.
How is ROAS different from CAC?
ROAS looks at revenue relative to ad spend, while CAC looks at the cost to acquire one customer — they’re related but answer different questions.