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What Is ROAS and How Do You Calculate the Right Target ROAS?

Learn what ROAS means, how Google Ads can be profitable and how to calculate the right Target ROAS for your ecommerce business from your margin.

By Mark Koemans 4 min read

Illustration of a person at a laptop whose screen asks what ROAS is, surrounded by icons for product costs, shipping, payment fees and Google Ads

This article is also available in German.Read the German version

ROAS sounds complicated. It isn't. Let's sell a laptop.

1. What is ROAS?

You sell a laptop for $1,000, and Google Ads costs you $100 to generate the sale.

Revenue

$1,000

Google Ads

$100

ROAS

10.0

$1,000 ÷ $100

One laptop sale

For every $1 spent on Google Ads, you generated $10 in sales. That's ROAS: Return On Ad Spend, the $1,000 return you are getting on $100 of ad spend.

But did you make money?

2. Is a 10.0 ROAS profitable?

Let's add the costs.

ItemAmount
Selling price$1,000
Purchase price$650
Shipping$20
Payment fees$20
Google Ads$100
Left over$210
What is left from a $1,000 laptop sale

You have $210 left from a $1,000 sale. That's a 21% CM2 margin CM2 stands for contribution margin 2: the money left from a sale after all variable costs, so purchase price, shipping, payment fees and advertising. What stays covers your fixed costs and your profit. , the margin left after buying and shipping the goods and paying payment fees and Google Ads.

Great. But here's the important question:

3. How much CM2 do you actually need?

There is no magic percentage that works for every business, so start with a benchmark. Research normal CM2 or contribution margins for your type of ecommerce business. Ask your accountant, look at industry benchmarks, or simply ask an AI tool:

Quote

"What is a healthy CM2 margin for an ecommerce business selling consumer electronics?"

As a practical starting point, you might find something like this:

CM2 marginAssessment
Below 10%Risky
10 to 15%Acceptable, but tight
15 to 20%Healthy
Above 20%Very healthy
A typical benchmark for CM2 margins in ecommerce

Then compare that with your own historical numbers, overhead and the profit you want your business to make. For our imaginary electronics webshop, let's use a minimum CM2 of 18%.

4. What will customers actually pay?

The market matters too. Look at comparable laptops.

Too expensive

$1,200

Too cheap

$800

The sweet spot

$1,000

Comparable laptops on the market

So the realistic selling price is $1,000. Now we know three crucial numbers:

Purchase price

$650

Realistic selling price

$1,000

Minimum CM2

18%

Now we can calculate what Google is allowed to spend.

5. Calculate the minimum money you want to keep

18% of $1,000 is $1,000 × 18% = $180. After buying and shipping the laptop, paying the payment fees and paying Google Ads, we want at least $180 left.

Now work backwards:

ItemAmount
Selling price$1,000
Purchase price$650
Shipping$20
Payment fees$20
Minimum CM2 we want to keep$180
Left for Google Ads$130
Working backwards to the ad spend for one sale

That's what we can afford to spend on Google Ads to generate the sale.

6. Now calculate your Target ROAS

Revenue Google should generate

$1,000

Google may spend

$130

Target ROAS

7.7

$1,000 ÷ $130 = 7.69, or 770%

The Target ROAS follows from the numbers

That's it. We didn't guess 7.7, and Google didn't decide it for us. We calculated it from the economics of the sale.

Google was originally generating the sale for $100, giving us a ROAS of 10.0. That's fantastic.

But we've now calculated that Google can spend up to $130 and we'll still achieve our required 18% CM2 margin. So we don't necessarily need a Target ROAS of 10.0. Our business economics tell us that 7.7 is enough.

The recipe in five steps

  1. Know your costs. Purchase price, shipping and payment fees per sale.
  2. Find the realistic selling price. What comparable products actually sell for.
  3. Decide your minimum CM2. The margin your business needs to keep after ads.
  4. Work backwards to the ad spend. Selling price minus costs minus minimum CM2.
  5. Divide. Revenue divided by that ad spend is your Target ROAS.

7. Try it with your own numbers

The laptop was our example. Your shop has its own prices, costs and margin target, so the calculator below starts with the laptop numbers and shows the same 7.7 we just worked out. Change one field at a time, move a slider and watch what it does to the target.

Calculator

Your numbers, your Target ROAS

The fields start with the laptop from this article. Change one number and watch the target move with it.

What one sale looks like

The amount the customer pays at checkout for this product, discounts included. Google measures its ROAS against exactly this amount, which is why the target is calculated from it. $

What the customer pays

What the product itself costs you before you sell it: the supplier invoice or your production cost. Your fixed costs such as rent, salaries and software do not belong here, they are paid out of the CM2 that is left. $

What the goods cost you

Everything it costs you to send one order: the carrier label, packaging and the handling in your warehouse. Enter the part you carry yourself, not what the customer pays on top. $

What it costs to get the parcel to the customer

What your payment providers keep from one order: credit card, PayPal, Twint or an invoicing service, plus any fixed fee per transaction. Enter the amount that stays with them on an average order. $

Card, PayPal, invoicing, per order

CM2 stands for contribution margin 2: the money left from a sale after all variable costs, so purchase price, shipping, payment fees and advertising. What stays covers your fixed costs and your profit. %

The margin that has to stay after the ads are paid

Levers most shops forget

Your Target ROAS

7.7

That is 770%, the number you give Google Ads.

Google may spend per sale
$130
CM2 you keep per sale
$180
Break even ROAS
3.2

Below this, every sale loses money

The reality check

The ROAS your campaigns are reporting right now. Compare it with your Target ROAS above: the figures below show what one sale actually leaves you at this level.

Move it and watch what is left per sale

Ad cost per sale
$100
Left per sale
$210
CM2 margin
21%

Above your minimum CM2. This is the zone where you want to buy volume.

Where one sale goes at that ROAS
  • Goods $650
  • Shipping and returns $20
  • Payment fees $20
  • Google Ads $100
  • Left for you $210

Google counts the full order value at checkout, so returns and repeat orders never show up in its ROAS. That is why the target is measured against the full selling price, while your margin is measured against the money that really stays.

Two levers start switched off, because they only help you if you can back them with real numbers from your shop. Returns push your Target ROAS up, because part of the revenue Google reports never stays with you. Repeat orders pull it down, because the second order arrives without ad spend. Guess those two and you get a guessed target, so take them from your shop reports.

8. But what if you sell thousands of products?

This was just one laptop. But what if your webshop sells thousands of products with different purchase prices, selling prices, shipping costs, payment costs and margins? That's where it gets more complicated.

And since August 2026, Google takes the target you set more seriously than before. Read what Google's "Review your campaign targets" notice actually means for budget-limited campaigns.

Need help finding your Target ROAS?

At Wolf+Bär, we help ecommerce businesses calculate the Target ROAS they actually need to grow profitably. Whether you sell a handful of products or thousands, we can help you find the number that works for your business. We'll answer one simple question: is the Target ROAS you're giving Google actually the right one for your business?