The short definition
ROAS = revenue attributed to advertising ÷ cost of that advertising.
Spend $1,000, generate $4,000 in revenue, and ROAS is 4, often written as 4:1 or 400%.
The two problems for a service business
It uses revenue, not profit. A 4:1 ROAS sounds excellent. If your gross margin is 20%, that $4,000 of revenue is $800 of gross profit against $1,000 of spend — a loss. High-revenue, low-margin trades can run a healthy-looking ROAS while losing money on every campaign.
It counts one job. A customer acquired through advertising who then takes a maintenance plan and returns for years is worth many times their first invoice. Measuring the first job alone systematically undervalues acquisition and makes businesses under-invest.
The version worth using instead
Cost per booked job, compared against what a lead is worth to you:
Average job value × gross margin × close rate = value per lead.
A $600 job at 45% margin with a one-in-four close rate makes a lead worth about $67. If a channel produces leads below that, it is profitable before overhead. That figure is specific to you and moves when your pricing or close rate moves.
For businesses with repeat customers, use lifetime value rather than first-job value or you will consistently underestimate what you can afford to spend.
What a good number is
There is no universal threshold, and published benchmarks are not useful because margins differ so much between trades.
The number that matters is your own break-even, calculated from your own margin, and then whatever cushion above it you require for overhead and risk.
The attribution caveat
Whatever revenue figure goes into a ROAS calculation is only as good as the attribution behind it. If calls are not tracked, ad-driven revenue is understated. If branded search is credited to ads, it is overstated.
Ad platforms report their own conversions using their own attribution windows, which is why platform ROAS is almost always more flattering than reality.
Where ROAS is genuinely fine
Comparing two campaigns on the same platform, selling the same thing, over the same period. There the shared assumptions cancel out and the comparison is fair.
Working out your own numbers
Calculate your value per lead first. Every other advertising decision follows from it.
Frequently asked questions
How is ROAS calculated?
Revenue attributed to advertising divided by the cost of that advertising. Spend $1,000 and generate $4,000 and ROAS is 4, or 400%.
Why does ROAS mislead service businesses?
It uses revenue rather than profit, so a 4:1 ratio on a 20% margin is actually a loss. It also counts the first job rather than the customer's lifetime value.
What should I use instead?
Cost per booked job compared against value per lead — average job value multiplied by gross margin multiplied by close rate. That number is specific to your business.
Why is platform ROAS always higher than mine?
Ad platforms report conversions using their own attribution windows, which credit more outcomes to advertising than a conservative measurement would.