Profit-Adjusted ROAS
Profit-Adjusted ROAS (paROAS) is the Return on Ad Spend calculated using Contribution Margin rather than Gross Revenue. It tells you how much *profit* you made for every dollar spent. Unlike standard ROAS, 1.0 is not break-even; likely 0.0 is break-even (if calculated as Net Profit / Cost), or if calculated as Margin / Cost, then 1.0 is the goal.
The Short Version
ROAS that actually pays the bills.
Visual Explanation
Why ROAS Lies
ROAS is lying to you. Not because the math is wrong. Because the question is.
Prerequisites
The 4.0 ROAS Bankruptcy
You have 4.0 ROAS. But your COGS are 60%, Shipping is 10%, Fees are 3%.
Your real margin is 27%. A 4.0 ROAS means you spent $1 to get $4 revenue (which is $1.08 margin). You made 8 cents. If you scale, you barely break even.
How it works
Contribution Margin / Ad Spend
Target > 1.0 (to cover fixed costs)
Common Misconceptions
Setting ROAS targets without knowing your break-even point
Ignoring returns/refunds in the calculation
Assuming high ROAS equals high profit (High ROAS items might have low margin)
Frequently Asked Questions
QWhat is a good paROAS?
Anything above 1.0 means you are generating variable profit. To cover fixed costs (salaries), you typically need 1.5 - 3.0 depending on your operational leanness.