Is your advertising actually making a profit?
The ad platform reports ROAS on revenue. Profit, however, comes from the margin - and there is a big difference between the two.
ROAS (return on ad spend) = revenue from advertising ÷ ad spend. Calculate revenue excluding VAT, because the margin is also based on prices excluding VAT.
Why can a "good" ROAS still lose money?
A ROAS of 4 sounds good: every euro of ad spend brings 4 € of revenue. But if your margin is 20%, only 0.80 € of those 4 € is profit - less than the advertising cost. You lose money on every sale, and the better the advertising "works", the more you lose.
Break-even ROAS = 100 ÷ margin %
A 20% margin → break-even is a ROAS of 5. A 30% margin → 3.3. A 50% margin → 2. Anything below the break-even point is buying revenue with your own money.
What else to look at besides the break-even point?
- Repeat purchases. If the customer comes back, the first purchase can break even or run slightly negative - but then you have to actually know your repeat purchase rate, not hope for it.
- Brand searches. Part of the revenue "brought in by advertising" would have arrived anyway. Campaign ROAS often looks better than the incremental growth advertising actually delivered.
- Price competition. If a competitor sells the same product cheaper, every click costs you more, because some visitors compare and leave. Alongside advertising return, keep an eye on your price position.
Advertising brings the customer in. The price decides whether they buy.
Look360 shows where your prices really stand against your competitors - before you increase your ad budget. Start with the free health check.