TLDR;
- Stop asking "what's a good ROAS?". It's the wrong question. The only number that matters is the ROAS *your* business needs to be profitable, which depends entirely on your profit margins.
- A 10x ROAS can be a failure for a low-margin business, while a 2.5x ROAS could be a massive success for a high-margin SaaS startup.
- The most important metric is your Break-Even ROAS. It's simple to calculate: 1 ÷ Your Profit Margin %. Anything above this number is profit.
- This article includes an interactive calculator to find your exact Break-Even ROAS and a more advanced one to calculate your LTV:CAC ratio, the metric that truly defines sustainable growth.
- Your goal isn't just to break even. We'll show you how to set realistic and aggressive ROAS targets to actually scale your startup.
One of the most common questions I hear from startup founders is "what is a good ROAS?". And my answer is always the same: you're asking the wrong question. Tbh, there is no universal "good" ROAS. It's a myth. Chasing an arbitrary number like 4x or 5x without understanding your own business's economics is one of the fastest ways to burn through your funding.
The real question you should be asking is, "What ROAS do I need to be profitable and fuel my growth?". The answer isn't a benchmark you pull from a blog post; it's a number thats unique to your business, dictated by one single, critical factor: your profit margin.
A high-margin SaaS business could be wildly profitable at a 2.5x ROAS, while a low-margin eCommerce store might go bankrupt with a 5x ROAS. In this guide, I'm going to walk you through how to stop guessing and start calculating the exact ROAS targets your startup needs to survive, and then thrive. We'll move beyond simple ROAS to the metrics that actually matter for long-term growth, like Lifetime Value (LTV) and Customer Acquisition Cost (CAC).
So, what's the actual formula for a profitable ROAS?
Before you can set a target for what a "good" ROAS looks like, you need to know your absolute floor. This is your Break-Even ROAS (BER). It's the point where you are making back exactly what you spend on ads, considering the cost of what you're selling. Anything below this number, and you're losing money on every sale from your ads. Anything above it, and you're in the black.
The calculation is beautifully simple:
Break-Even ROAS = 1 / Your Profit Margin %
Let's take an example. Say you run a D2C startup selling handcrafted leather wallets. Each wallet sells for £100. The cost to produce, package, and ship that wallet (your Cost of Goods Sold or COGS) is £60. Your profit is £40, which means your profit margin is 40% (£40 ÷ £100).
Your Break-Even ROAS would be: 1 / 0.40 = 2.5x
This means for every £1 you spend on ads, you need to generate £2.50 in revenue just to cover the cost of the ads and the cost of the wallet. A 2.5x ROAS is your survival line. A 3x ROAS is profit. A 2x ROAS is a loss.
Now, compare that to a SaaS startup with a 90% profit margin. Their Break-Even ROAS is just 1 / 0.90 = 1.11x. They can afford to be profitable at a much lower ROAS because their cost of delivery is tiny. See why a single "good ROAS" benchmark is useless?
Use the calculator below to find your own break-even point. Play around with the slider to see how your profit margin dramatically changes the ROAS you need to aim for.
How do I figure out my profit margin?
This is where some founders get stuck, especially early on. You don't need a perfect, auditor-approved number to get started. A solid estimate is far better than a complete guess. Here’s a simple way to look at it for different business models:
- eCommerce/Physical Products: Your margin is (Average Order Value - Cost of Goods Sold) / Average Order Value. COGS should include the cost of the product itself, packaging, and any direct shipping costs. Don't include marketing or salaries here.
- SaaS/Software: Your margins are likely very high. Your COGS are things like server costs, transaction fees from your payment processor, and salaries for your core support team. It’s common to see margins in the 80-95% range. I've seen some of our SaaS clients, like one that grew to 45k+ signups at under £2 CPA, operate on the higher end of this.
- Services/Consulting: If you're selling a service, your main "cost" is the labor to deliver that service. Calculate the hours it takes to deliver a project and multiply by the hourly cost of the person doing the work. This can be tricky, but it's essential. Margins are typically high here too.
- Courses/Info-Products: Similar to SaaS, margins are extremely high. After the initial creation cost, the cost to sell one more unit is almost zero, aside from transaction fees. We saw this with a client who generated $115k in revenue in just 1.5 months selling courses. Their high margins meant they could reinvest heavily in ad spend.
To give you a better idea, here are some typical profit margin ranges you can use as a starting point if your own numbers are a bit fuzzy.
| Startup Business Model | Typical Gross Profit Margin Range | Implied Break-Even ROAS Range |
|---|---|---|
| SaaS (Software as a Service) | 80% - 95% | 1.05x - 1.25x |
| D2C eCommerce (Physical Goods) | 30% - 60% | 1.67x - 3.33x |
| Digital Products / Courses | 90% - 98% | 1.02x - 1.11x |
| Marketplace (e.g., App) | 15% - 50% (on Gross Merchandise Volume) | 2.00x - 6.67x |
| B2B Services / Agency | 50% - 70% | 1.43x - 2.00x |
Okay, I've got my Break-Even ROAS. Now what?
Breaking even isn't the goal. We're in business to make a profit and grow. Now that you know your floor, you can set intelligent, profitable ROAS targets. There is no magic number, but here is a simple framework I use with my clients:
- Target ROAS for Profitability (Conservative): Your Break-Even ROAS x 1.5. This gives you a decent buffer and ensures you're generating actual cash from your ad spend. For the wallet company with a 2.5x BER, this would be a 3.75x ROAS.
- Target ROAS for Growth (Aggressive): Your Break-Even ROAS x 2 or more. This level of return means you're not just profitable; you're generating significant cash to reinvest into more ad spend, product development, or hiring. This is how you scale your ad campaigns without killing your overall return. For the wallet company, this would be a 5x ROAS or higher.
This visualisation below shows how these targets shift based on a business's underlying profit margin. Notice how the D2C brand needs a much higher absolute ROAS to achieve its aggressive growth target compared to the SaaS company. It's all relative.
The Real Growth Metric: Moving Beyond ROAS to LTV:CAC
ROAS is a fantastic tactical metric. It's great for judging the day-to-day performance of an ad campaign. But for a startup, especially a SaaS or subscription business, it only tells a tiny part of the story. Why? Because it measures the immediate return from a customer's first purchase, not their total value over their entire relationship with you.
This is where Lifetime Value (LTV) and Customer Acquisition Cost (CAC) come in. This ratio is the ultimate measure of your business's health and scalability. It answers the real question: "For every pound I spend to acquire a new customer, how many pounds do they generate in profit over their lifetime?"
Here's how to calculate it:
- Customer Acquisition Cost (CAC): Total Ad Spend / Number of New Customers Acquired. Simple.
- Lifetime Value (LTV): (Average Revenue Per Account Per Month * Gross Margin %) / Monthly Customer Churn Rate %. This one's a bit more complex, but it's the most powerful number you can know.
A healthy LTV:CAC ratio is generally considered to be 3:1 or higher. This means for every £1 you spend to get a customer, you get £3 back in profit over their lifetime. A ratio like this gives you the fuel to grow aggressively. It tells you that your entire performance marketing strategy is sustainable.
A 1:1 ratio means you're on a treadmill to nowhere—you're spending as much to get a customer as they're worth. Anything less than 1:1, and you're actively paying to lose money.
For example, I remember one B2B SaaS client we worked with where we helped them acquire software trials for just $7 each. The immediate ROAS on that $7 spend is zero, because the trial is free. But let's imagine their business model is strong: if just 1 in 10 of those trials converts to a paying plan, and the lifetime value of that customer is $5,000, their true CAC for a paying customer is only $70 ($7 x 10 trials). Suddenly, their LTV:CAC ratio is an incredible $5,000 to $70—over 70:1. With numbers like that, they would be insane not to spend as much as they can acquiring $7 trials, even if the immediate ROAS is £0.
I've built another calculator below to help you figure this out for your own startup. It combines all the key inputs to give you a clear picture of your business's long-term viability.
So how do I put this all into action?
Understanding the theory is one thing, but making it work for you is another. Too many founders get paralysed by data. The goal here is to create a simple, actionable framework to guide your advertising decisions. You need to know exactly how to measure and maximise your paid ads ROI without getting lost in endless spreadsheets.
I've detailed my main recommendations for you below in a clear, step-by-step process. This is the exact framework we use to help startups move from burning cash to building a predictable, scalable growth engine. Follow these steps, and you'll be miles ahead of the competition who are still chasing vanity metrics and arbitrary ROAS goals.
| Step | Action | Why It Matters |
|---|---|---|
| Step 1: Calculate | Determine your Gross Profit Margin. Don't aim for perfection; a good estimate is enough to start. Use the table in this article if you're unsure. | This is the foundation of everything. Without knowing your margin, any ROAS target is a complete guess. |
| Step 2: Define Floor | Calculate your Break-Even ROAS using the formula: 1 / Profit Margin %. Use the calculator I provided. | This is your non-negotiable minimum target. If your campaigns are consistently below this number, you must pause them and fix the problem. |
| Step 3: Set Target | Set a realistic Target ROAS based on your goals. Start with BER x 1.5 for profitability, and push for BER x 2+ for aggressive growth. | This moves you from merely surviving to actively thriving. This target becomes the primary KPI for your ad campaigns. |
| Step 4: Optimise | Run your ad campaigns with your Target ROAS as the primary success metric. Systematically test audiences, creatives, and landing pages to improve performance and get closer to your goal. | A target is useless if you don't act on it. Constant optimisation is how you close the gap between your current ROAS and your Target ROAS. |
| Step 5: Graduate | Once you have consistent data flowing, begin calculating and tracking your LTV:CAC ratio. Aim for a healthy 3:1 or higher. | This is the ultimate metric of a scalable business. A strong LTV:CAC ratio will give you the confidence to invest heavily in growth, knowing your acquisition strategy is sound. |
Navigating this process can be complex, especially when you're also trying to build a product and run a company. It's not just about knowing the formulas; it's about understanding the nuances of each ad platform, crafting compelling creative, and building high-converting landing pages. Small improvements in each of these areas can have a massive impact on your final ROAS and LTV:CAC ratio.
If you've gone through this guide and feel like you've got a better handle on your numbers but are unsure how to actually implement the changes needed to hit your new targets, it might be time to consider expert help. We specialise in helping startups like yours build and scale profitable paid advertising campaigns. We live and breathe this stuff every day.
We offer a completely free, no-obligation strategy session where we can take a look at your current campaigns, discuss your goals, and give you some actionable advice you can use right away. If it seems like a good fit, we can discuss what working together might look like. If not, you'll still walk away with valuable insights. Feel free to reach out to schedule your free consultation.
Hope that helps!
