In a recent PPCChat discussion, PPC professionals unpacked how ROAS is defined, misunderstood, over-simplified \u2014 and sometimes weaponized. From platform-reported numbers vs. real business revenue, to unrealistic targets that throttle campaigns, to the eternal ROAS vs. ROI confusion, it turns out this \u201csimple\u201d metric carries a lot of baggage.<\/p>\n\n\n\n\n\n\n\n
Before exploring the full discussion, here is a concise summary of the key points. One clear takeaway from this PPCChat conversation is that ROAS is not inherently problematic; however, it is frequently misunderstood, oversimplified, and interpreted without sufficient context.<\/p>\n\n\n\n
If you just want the quick takeaways, here you go:<\/p>\n\n\n\n
Bottom line: ROAS is useful \u2014 just not when treated like the only number that matters.<\/p>\n\n\n\n
Return on ad spend – which is different than ROI (which can include time as an investment method) – @navahhopkins<\/a><\/p>\n\n\n\n The classic definition is revenue brought in divided by amount spent on ads. And this is what most businesses use as their definition. This definition leaves out other costs of advertising, such as PPC management @NeptuneMoon<\/a><\/p>\n\n\n\n Pretty straightforward: return on ad spend. It’s typically measured per channel for my clients, and some do a full blended number, but that’s more MMM territory. @JuliaVyse<\/a><\/p>\n\n\n\n ROI = Revenue\/cost As a metric which is no longer reliable @alimehdimukadam<\/a><\/p>\n\n\n\n I agree with you @Neptune Moon<\/a> pretty straight forward and no real ambiguity with the definition. @Ichasse<\/a><\/p>\n\n\n\n Some clients needs extra specificity, especially when Google or Meta ROAS is inflated or different from what’s attributable within their CRM. Here’s one example from a travel client:<\/p>\n\n\n\n @timmhalloran<\/a>I love the emphasis on the need for specificity for some clients @DiiPooler<\/a><\/p>\n\n\n\n How we use ROAS is a little different or how we approach it I should say, but they define it the same way. . @Ichasse<\/a><\/p>\n\n\n\n They typically do think of it as how much revenue came in that can be directly attributed to ads that were run. So revenue divided by the actual ad costs. @NeptuneMoon<\/a><\/p>\n\n\n\n My client’s definition is not itself different from ours, but they all have complex conversion valuations and some in the public sector don’t measure revenue from ads per se. So it gets into shared principles of what “counts” @JuliaVyse<\/a><\/p>\n\n\n\n They bring different perspectives, my goal is to triangulate what is happening in platform to what they are seeing in their business, the closer the correlation, the better the tracking\/attribution @Chriskostecki<\/a><\/p>\n\n\n\n Sometimes there is confusion from client side when they talk about ROAS & confuse it with ROI @alimehdimukadam<\/a><\/p>\n\n\n\n We are going to get into expectations in other questions.We are laying the groundwork here @NeptuneMoon<\/a><\/p>\n\n\n\n I have been working more to treat my fees as sunk costs and media dollars as investment. Don’t factor my rate into the return unless I am getting a piece of it! @Chriskostecki<\/a><\/p>\n\n\n\n Now to get the right ROAS you need to take into account new customers, current customers, cost of goods, etc… That is where things get a little tricky and depend on the brand and profitability with the product. @Ichasse<\/a><\/p>\n\n\n\n Yes @Lawrence Chasse<\/a> ROAS tends to be thought of and talked about as a monolith. @NeptuneMoon<\/a><\/p>\n\n\n\n One company can be super happy with a $10,000 cost to acquire a customer and another is only happy with a $10 cost to acquire a customer. Lifetime value is another big thing to think about (especially when acquiring a new customer). @Ichasse<\/a><\/p>\n\n\n\n Q3: What are the typical ROAS goals or expectations you encounter for the accounts you manage? Does it differ by product or service and\/or by platform? So far my clients don’t expect a different ROAS per channel, but they ask for ROAS reporting in the spirit of ‘what can we learn’ from this. @JuliaVyse<\/a><\/p>\n\n\n\n ROAS doesn\u2019t tend to be as big of a focus for lead generation as it seems like it is for ecommerce. Not that they don\u2019t care, but the fixation on it is less intense, at least in my experience @NeptuneMoon<\/a><\/p>\n\n\n\n I ask a slew of questions of my brands.<\/p>\n\n\n\n 3x seems to be a standard expectation broadly. Some understand LTV:CAC, some factor in returns, NC ROAS, etc. Varies from Ecom – Lead Gen & SaaS. The major fluctuations occur when the actual goal based on what client determines Revenue conv. action for ROAS & what platform does. IMO, for Ecom it\u2019s much simpler (barring attribution issues). It does differ by platforms esp. when brand search is a part of it. I realize we as PPC Pros are going to start saying \u2018it depends\u2019 a lot more like SEO\u2026. @alimehdimukadam<\/a><\/p>\n\n\n\n I typically work CPA discussions into ROI for the client (factoring in seasonality) – everything has a cost, including savings @Chriskostecki<\/a><\/p>\n\n\n\n Those are two of the biggest ones, but then there are other questions you need to ask based on the market you serve. If you are running vacation home rental ads, you need to understand the vacation renter, but you also have to understand the process of getting someone to list their vacation home with your site. Airbnb has a very different ROAS requirement with renters vs. home owners. The home owners are going to generate north of 40k per year on the platform via rentals and may stay with you for 3-5+ years vs. a renter where you may need to break even on the first rental and then if they stay with your site for that area you can make money on the next booking which could be via email and is cheap to attain for the second booking. @Ichasse<\/a><\/p>\n\n\n\n @Ali<\/a> this part: “The major fluctuations occur when the actual goal based on what client determines Revenue conv. action for ROAS & what platform does.” <\/em>I’ve always had a question in the back of my head based on how the Google algo defines a successful ROAS. Like, for instance, if you set an expectation (via tROAS targets of like 3:1) and the ML achieves that, and even goes beyond it, could it then follow that you’ve built a hypothetical artificial ceiling and your performance gets capped around a certain point? What if you change your expectations and decide you need a 7:1 – will it be more difficult in an account that has a learned ceiling or no? And outside of the hypothetical, are there levers that make this impossible I’m not thinking of? Just something I’ve thought before, and tried to test off it (like changing enhanced values to help it learn to aim higher) but I don’t have definitive proof one way or another. @timmhalloran<\/a><\/p>\n\n\n\n That is a very cool hypothetical to test @JuliaVyse<\/a><\/p>\n\n\n\n I think the questions about how does the internal algorithm work when you change a target like ROAS by a factor of 2x or more are really interesting ones. @NeptuneMoon<\/a><\/p>\n\n\n\n From my experience in SaaS focused on lead gen, it’s more about CostperSQL and pipeline value. @Shaileja<\/a> <\/p>\n\n\n\n @Timothy Halloran<\/a> bang on! The answer I\u2019ve found mostly is yes but attribution calc. will be mostly off platform and involves adding CRO, Email, Repeat Purchases, etc. Unless we have cohort based attribution going beyond platform attribution windows. @alimehdimukadam<\/a><\/p>\n\n\n\n There are other tools you can employ to get a better sense of the ROAS targets you need to hit, but most small -> medium brands do not employ them unfortunately, so it is more difficult for us to get a good picture of the perfect ROAS to hit. @Ichasse<\/a><\/p>\n\n\n\n The smaller the scope, the larger the swing. Have a company wide annual goal. sweet. drilling down into channel or month will be a part of it but not the actual number @Chriskostecki<\/a><\/p>\n\n\n\n I feel like clients pull desired ROAS targets out of their butts A LOT. There is no actual formula behind their desired ROAS, only \u201cit should be this.\u201d @NeptuneMoon<\/a><\/p>\n\n\n\n oh yeah, modeling out their hypothesis can be fun @Chriskostecki<\/a><\/p>\n\n\n\n \u201cIt should be 3\u201d – that\u2019s it. That is the end of the discussion from their POV @NeptuneMoon<\/a><\/p>\n\n\n\n The ROAS should be built using your data at the category level or even the product level if you have a SAAS or vacation rental, etc…. Most brands do exactly what you mentioned @Neptune Moon<\/a> and pull it out of thin air. It is more what they would like vs. the reality. If you set the ROAS too high, you will harm your campaign right out of the gate. Too low and you will get trash traffic. @Ichasse<\/a><\/p>\n\n\n\n if we want to list out should be’s, we can be here for a pretty long time (directed at the client) @Chriskostecki<\/a><\/p>\n\n\n\n And then if you try to get them to tell you what it actually needs to be with real data or what their cost per acquisition (CPA) needs to be to be profitable???? @NeptuneMoon<\/a><\/p>\n\n\n\n There are some ‘it should be 3+’ clients through my office, but my specific clients are more into taking a reported channel ROAS and extrapolating WAY too far. Like, Pmax aimed at store visit conversions will naturally report a higher ROAS than a TV\/CTV\/digital audio campaign. But they all work together. @JuliaVyse<\/a><\/p>\n\n\n\n In some ways, we kinda created this monster by pushing \u201cit is all so trackable with digital advertising\u201d so hard in the beginning of PPC. @NeptuneMoon<\/a><\/p>\n\n\n\n Like, for a restaurant, you might only get measurable data from your loyalty program, and that does not negate the visits through the door or the drive thru that don’t use points and don’t pay with a phone. It’s going to be modelled, and the model will be pretty good, but not actionable in the same way as ecom. @JuliaVyse<\/a><\/p>\n\n\n\n lots of time studying trees, very little understanding of the forest @Chriskostecki<\/a><\/p>\n\n\n\n This is a timely question because one thing I’ve been doing more lately using Claude is building probability models that show the client the likelihood of hitting certain ROAS thresholds based on available evidence (like historical channel performance, landing page conversion rates, etc) and the building it from the top down (the client says X amount of sales, or X ROAS), then do the math based on their expectation. That way they can see if they’re way off base or if it’s realistic. Easier to show them we “did the math” without having to default to something like, “Sorry it’s not possible” or “Sure, we’ll see what we can do.” @timmhalloran<\/a><\/p>\n\n\n\n Google can also only hit reasonable ROAS thesholds, so if your threshold is too high, the campaign just won’t show if you try and make it something it cannot reach. @Ichasse<\/a><\/p>\n\n\n\n I still prefer max bidding rules over rate rules. I use rate rules when demand warrants, but I would rather qualify the traffic and then use my bids to drive the volume. @Chriskostecki<\/a><\/p>\n\n\n\n Yes @Lawrence Chasse<\/a> ; Client: Why isn\u2019t this campaign serving much? <\/p>\n\n\n\n Q5: What do you think is the most misunderstood aspect of ROAS? This can be by clients\/stakeholders or PPC professionals.<\/strong> I think the thing that drives me most crazy is that no one is really looking at a true ROAS. They are looking at platform defined ROAS.<\/p>\n\n\n\n We can have differing views on whether my fees should get factored in to the cost part of the equation too. I think if you\u2019re super hung up on ROAS as the be all and end all, then you should make sure it is a real number. Because if you want to worship it, it better be accurate to your business. @NeptuneMoon<\/a><\/p>\n\n\n\n Either or. I think the fact that it’s a channel metric and not the same as internal revenue numbers is the biggest hurdle for my clients. @JuliaVyse<\/a><\/p>\n\n\n\n I think we need to separate the “dream ROAS” from the reality ROAS. You may want a 6.5x ROAS, but the reality is you can only get a 3.5x. I get the “email is driving x% of the business”, but what they don’t take into account is how many folks who come in through other marketing efforts fuel that email program. We have measured the drop off if marketing spend was reduced and the impact on the email list and it is not insignificant. You could see a 20%+ drop off in email sign ups due to marketing spend decreases or lowering the traffic from marketing campaigns. <\/p>\n\n\n\n That is why I also like when a brand uses the marketing efficiency ratio with programs, but that is a whole other discussion, lol. The abandoned cart program, abandoned search etc… all feed off other marketing programs and need to be taken into account as part of the overall ROAS. @Ichasse<\/a><\/p>\n\n\n\n The fact that you can be theoretically profitable at a 1 ROAS and not profitable even at a ROAS of 10 shows singling it out as a metric is detrimental. @alimehdimukadam<\/a><\/p>\n\n\n\n PPCChat Participants<\/strong><\/p>\n\n\n\n In a recent PPCChat discussion, PPC professionals unpacked how ROAS is defined, misunderstood, over-simplified \u2014 and sometimes weaponized. From platform-reported numbers vs. real business revenue, to unrealistic targets that throttle campaigns, to the eternal ROAS vs. ROI confusion, it turns out this \u201csimple\u201d metric carries a lot of baggage.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ub_ctt_via":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-27367","post","type-post","status-publish","format-standard","hentry","category-googl-search-tips"],"featured_image_src":null,"author_info":{"display_name":"Kirti","author_link":"https:\/\/www.karooya.com\/blog\/author\/kirti\/"},"_links":{"self":[{"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/posts\/27367","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/comments?post=27367"}],"version-history":[{"count":5,"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/posts\/27367\/revisions"}],"predecessor-version":[{"id":27372,"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/posts\/27367\/revisions\/27372"}],"wp:attachment":[{"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/media?parent=27367"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/categories?post=27367"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.karooya.com\/blog\/wp-json\/wp\/v2\/tags?post=27367"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
ROAS = (Revenue-Spend)\/spend @Chriskostecki<\/a><\/p>\n\n\n\n\n
Q2: Do clients or stakeholders define ROAS differently from you?<\/strong><\/h4>\n\n\n\n
<\/strong><\/p>\n\n\n\n\n
Q4: What do you think are reasonable expectations for ROAS in PPC? And how do you explain this when clients or stakeholders have unrealistic ROAS expectations?
<\/strong><\/h4>\n\n\n\n
Me: Well the ROAS target is really aggressive so it might be struggling to find traffic that can meet it.
Client: Hmmm.
Me: So we might want to experiment with lowering that target to see what happens with regard to traffic and the quality of that traffic.
Client: No, we need a 6.5 ROAS so let\u2019s keep it where it is for now.
Me: Sure. (sends follow up email detailing this conversation) – @NeptuneMoon<\/a><\/p>\n\n\n\n
<\/p>\n\n\n\n
That it’s accurate. Full stop.
Or, that it’s its own thing – fully self-contained. Improvements in direct, brand traffic, or referral does not have any significant causation or attributable way to say that it’s PPC improving those. “Halo effect might exist but since we can’t measure it effectively, we’ll move forward with the assumption that it doesn’t. @timmhalloran<\/a><\/p>\n\n\n\n\n