How To Calculate Roas And Acos

How to Calculate Your Target ROAS and ACOS for PPC


Just think. There are 1,000's of advertisers running ads right now without knowing what their ROAS or ACOS targets are.

They operate on feelings: "it FEELS like things are improving."

They are then doomed since their optimization can't be centered around a target. Don't be doomed. Calculate your minimum ROAS and maximum ACOS with this video.

How to Find your Target ROAS & ACOS

Video Summary

Calculating Minimum ROAS and ACOS Video Notes

  • ROAS: Return on Ad Spend AKA Revenue over Ad Spend
    • Spend 100, Make 20 = 5x ROAS
    • (Revenue / Ad Spend)
  • ACOS: Ad Cost of Sales AKA Ad Cost over Sales
    • (Ad Spend / Revenue)
    • Spend 100, Make 20 = 20% ACOS
  • These represent the same thing: the relationship between your spend and your revenue
  • ROAS = 1/ACOS
  • ACOS = 1/ROAS
  • This is very important: the breakeven point
    • Minimum ROAS & Maximum ACOS
  • To Calculate breakeven:
    • Need revenue, cost of goods sold, any other fees (like Amazon Fee)
  • Example:
    • If you generate 100 dollars of revenue, with COGS of 20 dollars, and other fees of 15 per sale.
    • Profit per sale: $65
    • If you spend $66 on Ads, you will lose 1 dollar.
    • If you spend $64, you will make 1 dollar
    • Your Minimum ROAS is 100/65 = 1.53
    • Your Maximum ACOS is 65/100 = 65%
  • You need to decide what percentage of your profit you spend per sale
  • Some advertisers are very aggressive, others are much more conservative
    • Example: "I want to spend 50% of my profit on ads"
    • Example: I want to spend 80% of my profit on ads"
  • After you establish how much you want to spend per sale, you can calculate your target ROAS and target ACOS
  • This is very easy with 1 product, but it becomes a lot more challenging when you have dozens of products
  • Group products in ROAS target-groups.
  • Example:
    • If you have two products with an ROAS of 4x and 5x, you can put them in the same ad group targeting 5x.
  • This allows you to have a starting off-point to easily organize your campaign.
  • Be sure to label or title your campaigns with the target KPI inside of it.
    • Example: "Water Bottles + Target ROAS 4.5x + USA + Search + Cold Traffic"

Michael Erickson

Emailing my clients and telling them I helped increase their return on ad spend by 300% never gets old. I love rising above the technical jargon and providing your business with online marketing momentum to reach new heights.
Enthusiast for all things science, surfing, and Search Scientists.