If you’re running an eCommerce business, you’ve probably heard the term ROAS tossed around a lot.
But what exactly is ROAS, and why is it so crucial to your store’s success?
In this post, we’ll break down what ROAS means, how to calculate it, and most importantly — how to improve it so you can scale your profits faster.
What is CPA?
- CPA (Cost Per Acquisition) = how much you’re willing to pay for a customer to make a purchase.
- It’s critical because it guides Facebook to only spend when it can achieve your desired acquisition cost.
How to calculate your CPA target:
If you know your ROAS (Return on Ad Spend) target, you can figure out your CPA.
Here’s his formula:
CPA Target = (Revenue ÷ Number of Purchases) ÷ ROAS Target
Example:
- Revenue = $1,000
- Purchases = 10
- ROAS Target = 2
Step-by-step:
- $1,000 ÷ 10 = $100 (Average purchase revenue)
- $100 ÷ 2 = $50 CPA Target
👉 Meaning: You need Facebook to get customers for $50 or less to stay profitable.
Why setting CPA (cost cap) matters:
- If you set a Cost per Result Goal (CPA target) at $50, Facebook will optimize to find customers at or below $50.
- Without a cost cap, Facebook will spend your budget no matter how expensive the customers are.
Setting CPA:
- In new campaigns: set the cost cap at the campaign level.
- In ad sets: double-check that the cost cap is also set (especially for manual campaigns like Prospecting and Retention).
Pro Tips:
- Start slightly higher (e.g., $50) and lower the CPA goal slowly (e.g., $48, $45) once Facebook stabilizes.
- If the cost cap is too low from the start, your ads may not spend.
- Be patient in the first 7–14 days after setting a cost cap — allow time for Facebook’s learning phase.
Short summary of this:
- CPA = most you’re willing to pay for a customer.
- Calculate CPA using revenue per purchase and ROAS target.
- Set it as a cost cap to control your spend and maximize profitability.
What is average per purchase revenue
Average Purchase Revenue =
👉 the average amount of money you make from one customer’s order.
Formula:
Average Purchase Revenue = Total Revenue ÷ Number of Purchases
Example:
- You made $5,000 total revenue.
- From 50 purchases.
Then:
$5,000 ÷ 50 = $100
→ So on average, every customer spends $100.
Why it matters for CPA:
When you know how much you earn per customer, you can figure out how much you can afford to spend to get that customer (your CPA).
If you make $100 per sale, and you want a 2x ROAS (double your money), you can only afford to spend up to $50 to get a customer.
Think of it like this:
- Average purchase revenue → How much you make per order.
- CPA (cost per acquisition) → How much you can pay to get an order profitably.
Quick tip:
If your average purchase revenue is low, you must be careful with your CPA — you can’t afford high acquisition costs unless you raise prices, increase order value, or improve customer lifetime value.
Why the difference between $100 per sale and $50 to get a customer? Where are the $50 left?
Here’s the situation:
- $100 → That’s how much revenue you make when someone buys from you (average purchase revenue).
- $50 → That’s the maximum you’re willing to pay Facebook to get that customer (CPA target).
- The $50 leftover → This is your margin. It covers:
- Your product cost (what it costs you to make or buy the product)
- Shipping costs
- Staff/salaries
- Software (like Shopify, email marketing)
- Profit (the actual money you keep)
Simple breakdown:
| Item | Amount |
|---|---|
| Customer pays you (Revenue) | $100 |
| Facebook ad cost (CPA) | – $50 |
| Leftover for everything else | $50 |
From the $50 left:
- If your product costs $30 to make and ship → you still keep $20.
- That $20 is your profit after paying for ads and product costs.
Why you can’t spend the full $100 to get a customer:
If you spent $100 to get a $100 sale:
- You would break even (no profit).
- You still have to pay for the product and business expenses.
- You would lose money.
That’s why he says:
👉 You need a healthy gap between your revenue and your CPA.
Usually, brands want at least 2x ROAS (spend $1, get $2 back) or better.
Super quick example:
Imagine you sell a T-shirt:
- You sell it for $100.
- It costs you $30 to produce it.
- You pay $50 to Facebook to get a sale.
Math:
- $100 revenue
- – $30 product cost
- – $50 ads = $20 net profit
✅ You still make money!
If you spent $100 to get a customer, you’d make $0 or worse.
That’s the real reason:
CPA must be lower than average purchase revenue, so your business survives and grows.
The ROA to aim for is 2 always?
No, ROAS 2 is not always the target.
But 2x ROAS is a common “minimum” goal for many e-commerce brands to be safely profitable.
Let’s dig into it properly:
What ROAS to aim for depends on your business margins:
- If your product margins are good (high profits) →
You might be fine with lower ROAS (like 1.5x to 2x). - If your product margins are thin (low profits) →
You need higher ROAS (like 3x, 4x, or even 5x).
Real-world examples:
| Situation | Target ROAS |
|---|---|
| High-margin product (e.g., digital course, jewelry, cosmetics) | 2x to 3x |
| Low-margin product (e.g., furniture, electronics) | 3x to 5x |
| Subscription products (e.g., meal kits, SaaS) | Even 1x ROAS is fine because of lifetime value (LTV). |
Quick formula to find your ideal ROAS:
Ideal ROAS = 1 ÷ Profit Margin
Example:
- Your profit margin is 50% (meaning half of what you sell is pure profit).
- 1 ÷ 0.5 = 2
- So you need at least a 2x ROAS to break even or make some profit.
Another example:
- Profit margin is 30%.
- 1 ÷ 0.3 = 3.33
- You need at least a 3.3x ROAS to be profitable.
Important:
✅ 2x ROAS is a good starting point for many brands.
✅ But you MUST check your own margins to set the real target.
If you just guess and aim for 2x but your business actually needs 3x to survive… you could scale and still go broke. (Happens all the time.)
Super simple way to think about it:
- Higher margin = lower ROAS needed.
- Lower margin = higher ROAS needed.
- Subscriptions/Lifetime Value = lower initial ROAS is okay (because customers pay you many times later).
TL;DR:
👉 2x ROAS is a common goal, but not always correct.
👉 Always check your profit margin to set your real target.
I hope this was helpful and clarified some concepts.
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