One of the things we find surprisingly often when we start working with a new client is that nobody has clearly established what ROAS the business needs or what CPA it can afford.
The company may already have been running Google Ads or Meta Ads for months. There may be an agency or freelancer managing the campaigns, reports are being sent and conversations are happening about whether ROAS is going up or CPA is going down. But nobody has answered the most important question: at what point do these campaigns actually make money for the business?
Without knowing that, it is very difficult to say whether the advertising is performing well at all.
A good ROAS is different for every business
There is no ROAS that is universally good. A ROAS of 3 might be very profitable for one company and loss-making for another. The same applies to CPA. One business might comfortably pay €100 to acquire a customer, while another starts losing money at €40.
It depends on the economics of the business: margins, product costs, fulfilment, repeat purchases and many other factors. That is why simply comparing your ROAS with an industry benchmark or deciding that "4x ROAS sounds good" doesn't tell you much.
The number only becomes useful when you know what it means for your own business.
ROAS should be decided before campaigns start
Before an agency, freelancer or internal team starts spending money, the business should know what performance is required from those campaigns.
At minimum, there should be a clear understanding of the ROAS below which the advertising starts losing money, or the maximum CPA the business can afford to pay. Ideally, there should also be a target above that break-even point, because the purpose of advertising is normally to generate profit rather than simply recover the money spent.
The exact way these numbers are calculated will be different for every business. What matters is that they are calculated and agreed on before campaign performance starts being evaluated.
And if a business does not know how to determine them, we believe the agency or freelancer managing the advertising should raise the question and help work through it. Starting campaigns without discussing profitability first means everyone is effectively optimizing towards numbers without knowing whether those numbers are good for the company.
Revenue does not necessarily mean profit
This becomes particularly dangerous because paid campaigns can look successful for quite a long time.
Ads are generating sales. Revenue is appearing in Google Ads or Meta Ads. The monthly report shows conversions. Perhaps the ROAS even looks respectable.
But revenue generated through advertising is not the same as profit generated through advertising.
We have seen situations where campaigns had been running for months before the business properly looked at the economics behind those sales. Once the costs were taken into account, the campaigns were not actually breaking even.
In those cases, switching the campaigns off would have left the company with more money in its bank account than continuing to generate those sales.
That is something you should never discover several months after launching paid advertising.
ROAS and CPA need business context
Advertising platforms are very good at telling you what happened inside the campaigns. They can show revenue, conversions, ROAS, CPA and dozens of other metrics.
What they cannot tell you is whether those results make financial sense for your company.
That information has to come from the business.
So before asking whether your Google Ads or Meta Ads campaigns have a good ROAS, there is a more important question to answer first:
What ROAS does your business actually need?
And before celebrating a falling CPA: What CPA can your business actually afford?
Once those numbers are clear, campaign performance becomes much easier to judge. You know where the break-even point is, you know what good performance looks like, and you can make advertising decisions based on the profitability of the business rather than simply the numbers shown in an ad platform.