ROAS vs ACoS — what should you really measure in PPC?
The problem with PPC metrics
Sellers often optimize campaigns for ROAS or ACoS without understanding that neither metric alone says anything about profitability. You can have an ACoS of 10% and lose money — if the product margin is 8%.
ACoS — what it is and how to calculate it
ACoS (Advertising Cost of Sales) = ad spend / ad revenue × 100%
Example: you spent 1,000, earned 5,000 from ads → ACoS = 20%
Break-even ACoS is the maximum ACoS at which a campaign breaks even. If your margin after fees and costs is 30%, break-even ACoS = 30%.
Goal: ACoS below break-even. The lower, the more profitable the campaign.
ROAS — the inverse of ACoS
ROAS (Return on Ad Spend) = ad revenue / ad spend
ROAS 5 = for every 1 spent on ads you earn 5 in revenue.
ROAS and ACoS are inverses: ROAS 5 = ACoS 20%.
TACoS — the metric that says more
TACoS (Total Advertising Cost of Sales) = ad spend / total revenue (organic + advertising)
This is the metric I use to assess channel maturity. A high TACoS means the business is too dependent on advertising. A falling TACoS with rising sales means ads are fueling organic growth.
How to apply this in practice
- Calculate break-even ACoS for each product separately (margins differ)
- Set an ACoS target below break-even — e.g. if margin is 35%, target ACoS = 25%
- Track TACoS monthly — it should fall as the account matures
- Use ROAS as a quick indicator in reports, not as an optimization target
What to ignore
Do not optimize for ROAS without knowing your margin. A campaign with ROAS 10 can be loss-making if the margin is 8%. Always start with the margin.