Return on ad spend
ROAS / conv. value / cost / conversion value per cost
Return on ad spend compares what the advertising produced against what it cost. Google reports it as conversion value divided by cost and shows a percentage. Microsoft divides revenue by spend and shows a ratio. Neither is net of your own costs, so it is not profit.
Start with something that surprises most people: Google Ads does not have a column called ROAS. The metric is named Conv. value / cost, and Google's definition of it is one line. Conversion value per cost estimates your return on investment. The word ROAS only turns up in the name of a bidding strategy.
That matters because of what sits on top of the division. Google's numerator is conversion value, not revenue. Conversion value is a number somebody assigned to each conversion, and Google is explicit that you have to set those values before a Target ROAS strategy can run. So the figure rests on an assumption typed into a settings screen, and it is only as honest as that assumption.
Microsoft does it differently in two ways at once. Its formula is written as Revenue divided by Spend, so its numerator really is revenue. And it reports a ratio where Google reports a percentage. Google's own worked example is 5 dollars in sales for every 1 dollar spent, expressed as a 500 percent target. The identical performance in a Microsoft report reads as 5. Put the two side by side without converting and you appear to be doing a hundred times better on one platform.
One more thing nobody claims but many people assume. Neither platform describes this figure as net of anything. Not your cost of goods, not labor, not fulfillment. A 5 times return on ad spend on a product carrying a 20 percent margin is losing money, and nothing in either definition would tell you that.
In practice
An agency reports a 6x return and a 400 percent return in the same deck, one from each platform. Those are not a good number and a bad number. Converted to the same unit they are 600 percent and 400 percent. Before comparing anything, check which platform used which unit, and whether the conversion values behind the Google figure were set deliberately or left at a default somebody chose once.
Not the same as
- Profit
- It compares value to ad cost only. Everything else it takes to deliver the work is missing.
- Target ROAS
- That is a bidding instruction, not a measurement. Google says some conversions return higher and some lower, and the target is an average it aims at.
Why it matters to you
This is the headline number on most agency reports, and it is the easiest to make look good. Raise the value assigned to a conversion and the return rises without anything changing in the real world. That is not fraud, it is just the arithmetic, which is why the question to ask is never only what the number is.
What is typical
There is no benchmark worth quoting, because the numerator is whatever value somebody assigned to a conversion. Two businesses with identical results can report very different figures honestly.
What to ask or check
- 01Is this a percentage or a ratio, and which platform is it from?
- 02Where did the conversion values come from, and when were they last reviewed?
- 03What does this number look like after cost of goods and labor?
What people get wrong
That a 5 times return means five dollars of profit per dollar spent. Neither platform describes the figure as net of cost of goods, labor or fulfillment. On a 20 percent margin, a 5 times return on ad spend is losing money.
Red flags
- A percentage from Google and a ratio from Microsoft compared side by side without converting.
- Conversion values nobody can account for, or that changed without a note.
- A return on ad spend quoted as though it were profit.
Where you will see it
As Conv. value / cost in Google Ads, and as a return on ad spend column in Microsoft Advertising reports.