ROAS Optimization Guide To Maximize Your Ad Spend Returns

Introduction

Ad budgets keep growing. But are your returns keeping up?

Forrester projects that global technology spend will grow by 5.6% in 2025, reaching $4.9 trillion, up from $4.7 trillion in 2024. This surge signals that businesses are doubling down on digital investments, advertising included. Yet, for many marketers, there’s a frustrating gap: spend goes up, but ROAS stays flat.

You tweak creatives. You adjust bids. You shuffle budgets between platforms.

But somehow, your ROAS (Return on Ad Spend) doesn’t move the way it should.

Why?

Because ROAS is often misunderstood and misused. Many marketers fixate on getting a “high ROAS” number without realizing they might be optimizing for the wrong metrics, missing channel dependencies, or falling into the over-saturation trap.

That’s where strategic marketing spend optimization becomes critical.

It’s not just about cutting costs or chasing vanity metrics. It’s about ensuring every dollar spent contributes meaningfully to business outcomes through smarter ROAS optimization.

This post demystifies the concept of ROAS and provides practical guides for working with ROAS and similar KPIs.

If you're working in marketing and advertising, you must've already heard about ROAS. But, like many other topics in marketing, there are important nuances to ROAS. Understanding the intricacies of ROAS is crucial for optimizing marketing strategies and maximizing returns on ad investments.

The article aims to highlight some of the caveats around ROAS and equip you with the necessary knowledge in interpreting ROAS and similar metrics.

What is ROAS?

ROAS (read row-aas) is one of the key metrics in any marketer's toolbox. It stands for Return On Ad Spend, and as the name implies, it's an ROI-like metric.

ROAS is the change in revenue per dollar spent on ads. It can be reported as a percentage or in absolute dollar terms. For instance, 200% ROAS means you earn $2 for every $1 spent on advertising.

However, looking at overall ROAS can be misleading. Different channels perform differently, and without granular tracking, you risk investing in the wrong places.

Instead of defining ROAS for the entire advertising, it's more beneficial to report ROAS at the channel level. Reporting ROAS at the channel level is crucial for advertisers to optimize their channel mix strategy.

ROAS is an attempt to isolate the impact of a channel on the revenue outcome, regardless of other channels within the mix.

For example, if ROAS values for Facebook Ads and Google Search are 300% and 400%, respectively, Google Ads generates $4 per dollar spent. In this campaign, Google Search outperforms Facebook Ads, making it logical to allocate more budget to Google Ads.

Example of Channel-Level ROAS

One of the biggest mistakes marketers make when optimizing ROAS is relying on aggregate figures. Overall ROAS can hide channel inefficiencies or falsely attribute success to underperforming platforms.

To make smarter optimization decisions, you need to analyze ROAS at the channel level. This lets you see which channels are actually driving revenue, and which ones are wasting budget.

Consider a marketing campaign that includes three digital media channels: Google Ads, Facebook Ads, and YouTube Ads.

Spend in each channel:

• Google Ads: $250K
• Facebook Ads: $100K
• YouTube Ads: $200K

Moreover, we know that we generated $1.5M in revenue.

What is the ROAS for each of the channels? To do so, we must generate three counterfactual scenarios where we switch off a single channel and predict the revenue outcome without the channel.

The following figure shows the three counterfactual scenarios for our channels, along with the predicted revenues under each scenario.

Based on these predictions, the revenue drops by $1M when Google Ads is switched off. Given that our original spend on Google Ads was $250K, the ROAS for this channel is $4 (or 400%), as shown by the following formula:

ROAS = (1,500,000 - 500,000) / 250,000 = 1,000,000 / 250,000 = 4

The following table summarizes the ROAS results for every channel:

ROAS at the channel level.

Looking at these numbers, it might seem obvious to divert more budget to Facebook Ads, given its higher ROAS. But this is where many marketers go wrong.

Without considering factors like diminishing returns, channel saturation, and marginal ROAS (which we'll cover later), shifting spend based on static ROAS can backfire.

This example shows how channel-level ROAS helps you prioritize optimization efforts, but it’s just the starting point. Smart ROAS optimization requires going beyond static metrics and into dynamic, data-driven decision-making.

Key Considerations When Interpreting ROAS

ROAS is not a static number. It shifts based on spend levels, channel interactions, and timeframes. Failing to account for these dynamics often leads to poor budget allocation, wasted ad spend, and misleading performance conclusions.

When reviewing ROAS results, consider these three important propositions:

1. A channel's ROAS decreases when spending more on the channel.
2. A channel's ROAS depends on other channels within the mix.
3. ROAS changes over time.

In this section, we discuss each of these three propositions.

Channel's ROAS decreases when spending more on the channel

When faced with a relatively high ROAS for a particular channel, it can be tempting to overinvest in the channel. As a result, the channel becomes less effective due to the diminishing returns effect on marketing spend.

It's important to be mindful of the law of diminishing returns when it comes to spend on a particular channel. Overusing a channel leads to decreased effectiveness, resulting in a lower ROAS as we continue to allocate more resources to that channel.

Therefore, it's essential to find the optimal balance to maintain the channel's effectiveness and ROAS.

In practice, marketers often over-invest in specific channels due to incomplete analytics or anecdotal wisdom. We recommend measuring ROAS regularly to avoid channel saturation.

Also Read:] Diminishing Returns in Marketing Spend

Channel's ROAS depends on other channels within the mix

In the complex landscape of advertising, the ROAS for a particular channel is not solely determined by the performance of that channel alone. Instead, it is influenced indirectly by the interactions of other channels within the marketing mix.

Understanding that different channels are intricately interwoven and rarely operate in isolation is crucial for developing a comprehensive and accurate assessment of advertising effectiveness.

In the following example, ROAS for channel X varies under two different mixes. Note that the spend on channel X is identical under both mixes.

ROAS changes over time

ROAS is a temporal metric that reflects the efficiency of a channel within a specific timeframe, such as a month, quarter, or even year. The ROAS that you measured last quarter may not be the same this quarter.

Therefore, it's essential to continuously monitor the marketing mix, by regularly measuring channels' ROAS.

When set to a very short period, such as weekly, background noise overwhelms the actual signal, leading to uncertain and noisy ROAS measurements.

On the contrary, long time intervals may overlook important seasonal shifts in market conditions, ultimately diluting valuable signals within the broader scope of long-term trends.

Keeping these nuances in mind is the first step toward effective ROAS optimization. Without this foundation, even the best optimization tactics will fall flat.

Different types of ROAS

If you've ever been confused by conflicting ROAS reports from Google, Facebook, or your internal dashboards — you’re not alone. One of the biggest challenges in ROAS optimization is knowing which ROAS number to trust.

Should you believe what platforms report? Or your internal models? Or the last experimental test result?

The answer isn’t simple. Each ROAS measurement method has its own strengths, weaknesses, and ideal use cases. Without understanding these differences, marketers risk making decisions based on inflated or misleading data — leading to poor optimization moves and wasted budgets.

Having multiple ROAS measurements for the same channel is often a source of confusion and continuous debate. Several sources for ROAS usually exist, which are not always compatible.

In this section, we review the three primary sources for ROAS measurements. Going from the most credible to the least credible, here are the three ways to get ROAS measurements:

1. Incrementality testing (Experimentally verified)
2. MMM Measurements (Holistic and top-level)
3. In-Platform Measurements (Vendor-specific and inflated)

Incrementality testing

This is the highest quality measurement, as it relies on experimentally verified measurements. By increasing or decreasing the spend in one channel on a single sub-region, marketers can measure the incremental return of a particular channel.

By experimentally measuring the impact of a channel spend on the underlying sales, this approach offers a clear picture of the true causal impact of a specific marketing channel.

While the concept of this measurement is interesting, there are specific situations where it may not be feasible to implement.

This type of measurement also demands careful planning and precise execution, which can make it require a significant amount of resources to implement effectively.

Therefore, it's recommended to perform such experimental measurements occasionally. The outcome of these experiments can improve the internal MMM system. This is conceptually similar to the idea of AI Grounding, which is very popular in the GenAI community.

In practice, we use the results of incrementality testing to inject real-world knowledge into the MMM system.

Benefits:

Most accurate: Offers the most precise way of measuring ROAS.

Challenges:

Resource-heavy: Setting up experiments and analyzing the data requires extensive hands-on work and sometimes a dedicated team.

Can be implausible and risky: It can be challenging to test every channel, especially global channels. These tests can put sales in critical markets at risk, making team buy-in difficult.

Marketing Mix Modeling (MMM)

In this approach, a predictive statistical model is fitted to the historical spend and sales data. Once the MMM system is established, it can holistically measure the impact of each channel's spend on sales.

The MMM model can be used to estimate the counterfactual scenarios, where a particular channel is completely switched off. As a result, we can estimate the impact of the channel on revenue or sales.

MMM measurement is top-level and holistic. It uses predictive modeling to estimate channels' ROAS.

It's important to note that training MMM models can be difficult due to the shortage of training data. This "small data" problem makes it especially challenging to train a predictive model because there can be several fits that offer the same level of goodness of fit.

Moreover, the estimated ROAS values from an MMM may have large error bars (confidence intervals). As a result, these ROAS can be challenging to work with and less useful for strategic decision-making.

Benefits:

Holistic and Top-Down: A comprehensive approach to measure all the channels within a unified framework.

Fast and Easy: When an internal MMM is established, measuring ROAS at the channel level is very quick.

Challenges:

Error-prone: Lack of sufficient data for training a predictive MMM model makes the models less reliable.

Uncertainty: The uncertainty in ROAS measurements from an MMM can be large, making them less ideal for channel mix optimization and strategic decision-making.

In-platform ROAS

The last source for ROAS is from platforms such as Google Analytics. Users can simply view the ROAS reports on these platforms.

However, platform owners have an incentive to over-report the ROAS for their channel. This is how they sell their service, and an inflated ROAS makes a good case for spending more on the platform.

Benefits:

Readily available: It's easy to obtain in-platform ROAS as major platforms report their ROAS in their dashboard.

Challenges:

Unreliable: The in-platform ROAS is usually exaggerated, as the platform owners have an incentive to inflate their numbers..

Marginal ROAS (mROAS)

One of the most common ROAS optimization mistakes is making large budget shifts based on static ROAS numbers. Marketers often see a channel performing well and immediately double its budget, only to watch performance decline due to saturation and diminishing returns.

This happens because traditional ROAS doesn’t tell you how much incremental revenue an extra dollar will bring. It simply shows past performance, not future potential.

That’s where Marginal ROAS (mROAS) becomes crucial.

mROAS of a particular channel quantifies the change in revenue due to a minor perturbation to the spend on that channel.

Instead of comparing revenue when a channel is entirely off (ROAS), mROAS compares the revenue when we modify the spend by a small fraction. For instance, when we increase/decrease a channel spend by 1%, how much does the revenue change?

mROAS offers a more practical approach for experimentally measuring return on spend. Moreover, the idea of mROAS makes it plausible to perform several tests simultaneously.

We at ELIYA utilize a combination of incrementality testing to measure mROAS across multiple channels simultaneously. We then leverage the results of these experiments to incorporate real-world insights into the MMM system.

By focusing on mROAS, marketers can make smaller, data-driven adjustments — reallocating budgets with precision and minimizing the risk of overspending on channels that are past their point of efficiency.

This makes mROAS a powerful tool for continuous ROAS optimization rather than reactive, one-time adjustments.

5 Best ROAS Optimization Strategies: How to Improve Returns Effectively

1. Don’t Scale Just Because ROAS Looks Good

It’s tempting to pour more budget into a campaign when you see a high ROAS. But here’s the catch: as you scale, performance often drops because of saturation. That’s why you need to check marginal ROAS (mROAS) before scaling.

Try this:

• Run a small +5% budget test on top-performing channels to see if returns hold up.
• Track the incremental revenue vs. incremental spend and not the overall ROAS.
• If mROAS drops sharply, pause scaling and re-evaluate.

2. Focus Your Budget on People Who Already Know You

Chasing cold audiences burns cash fast. Instead, retarget people who’ve already interacted with your brand as they’re more likely to convert and give you better ROAS.

Quick wins:

• Build retargeting audiences from your website visitors, CRM, and email list.
• Run upsell and cross-sell campaigns for past customers.
• Exclude low-intent audiences (e.g., bounced visitors) to avoid wasting budget.

3. Refresh Your Ads Before They Get Stale

Even the best ads lose their charm. If your CTR is dropping and CPA is creeping up, it’s time for new creatives. A simple refresh can revive performance and improve ROAS.

Do this:

• Swap in new images, videos, or copy angles every 2-4 weeks.
• Test different ad formats (carousel, UGC-style, short-form video).
• Repurpose top-performing organic content into paid ads.

4. Let AI Handle Bidding Smarter Than You Can

Manually tweaking bids is time-consuming and rarely beats AI. Platforms like Google and Meta have smart bidding strategies that optimize for ROAS in real time.

Here’s how:

• Use Target ROAS bidding on Google and Advantage+ campaigns on Facebook.
• Start with historical ROAS data to set realistic targets.
• Review bid strategies monthly and adjust if needed because automation still needs monitoring.

5. Run Simple Tests to Find Out What’s Actually Working

Platforms love showing you inflated ROAS numbers. But you need to validate if those numbers are real. Small experiments can reveal what’s truly driving sales.

Simple steps:

• Run a geo-lift test (pause ads in one region, compare sales with active regions).
• Try holdout audiences to measure true incremental lift.
• Use these insights to adjust your channel mix and budget allocation.

ROAS Optimization Process: Step-by-Step Framework

While strategies tell you what to do, you also need a clear process to apply them consistently. Here’s a practical 5-step ROAS optimization process you can follow to maximize your returns:

Step 1: Audit Your Current ROAS Performance

Before making changes, you need a baseline.

• Analyze ROAS across channels, campaigns, and audience segments.
• Identify underperforming vs. high-performing channels.
• Separate platform-reported ROAS from more reliable sources (MMM, incrementality tests).
• Understand the cost per conversion, not just cost per click.

This step uncovers inefficiencies and prevents you from optimizing based on flawed data.

Step 2: Identify High-Impact Channels and Saturation Points

Not all channels scale equally.

• Use Marginal ROAS (mROAS) to assess which channels still have room for profitable growth.
• Detect channels where diminishing returns are setting in.
• Consider channel interdependencies (e.g., how Facebook impacts Google Search performance).

Ensures your optimization efforts target the channels with the best incremental potential.

Step 3: Apply Incrementality & mROAS Testing for Accurate Measurement

Static metrics aren't enough for optimization decisions.

• Run incrementality tests (geo-lift, holdout groups) to measure true impact.
• Use mROAS analysis for small-scale budget shifts and validate results.
• Incorporate findings into your MMM models for a holistic view.

Avoids optimization based on inflated or misleading platform data.

Step 4: Optimize Creatives, Targeting, and Bids Based on Insights

Once you have accurate data:

• Refresh ad creatives focusing on conversion optimization.
• Refine audience targeting using first-party and lookalike data.
• Implement AI-driven bid strategies to adjust in real-time.
• Reallocate budget dynamically to channels showing strong mROAS.

Ensures every optimization lever — creative, targeting, bidding — is aligned with real performance data.

Step 5: Monitor, Benchmark, and Iterate Continuously

ROAS optimization isn’t a one-time task.

• Set up weekly/monthly performance benchmarks.
• Track both short-term ROAS and long-term profitability (LTV, CAC).
• Continuously test new hypotheses, creatives, and budget allocations.
• Revisit incrementality tests quarterly to validate shifts.

This step builds a sustainable, agile optimization loop rather than reactive fixes.

Key Caveats of ROAS

In this section, we highlight a few crucial caveats for ROAS:

• ROAS measurements are subject to change over time.
• A channel's ROAS decreases when spending more on the channel.
• A channel's ROAS depends on the other channels within the mix.
• In practice, there is a high amount of uncertainty for ROAS measurements.
• The standard definition of ROAS estimates a channel's impact on momentary revenue, which ignores the customer lifetime value (LTV) and future revenues.
• Small campaigns can generate very high ROAS, albeit with high uncertainty.

Conclusion

In conclusion, understanding and effectively utilizing ROAS is vital for optimizing marketing strategies and maximizing the impact of advertising investments. While ROAS provides valuable insights into channel performance, it is essential to consider its limitations and the broader context in which it operates. Factors such as diminishing returns, channel interdependencies, temporal variations, and measurement methodologies all play critical roles in interpreting ROAS accurately.

By acknowledging these nuances, marketers can make more informed decisions, balancing their investments across channels and adapting strategies to changing market conditions. Ultimately, a comprehensive approach that combines different ROAS measurement techniques, such as incrementality testing and Marketing Mix Modeling, with ongoing analysis and adaptation will lead to more sustainable and effective marketing outcomes.

FAQs

1. What is considered a low ROAS and how can I fix it?

A low ROAS generally means you're not generating enough revenue for every dollar spent on ads. While “low” depends on your business margins, anything below breakeven is a red flag. To fix it, start by reviewing your targeting, ad creatives, and channel efficiency. Focus on optimizing conversion rates rather than just cutting ad spend.

2. How does ROAS optimization differ for B2B vs B2C businesses?

B2C brands often optimize ROAS for immediate conversions, while B2B focuses on longer sales cycles and lead quality. For B2B, ROAS optimization involves aligning campaigns with pipeline impact and lifetime value (LTV), not just quick sales.

3. Can ROAS optimization help reduce customer acquisition cost (CAC)?

Yes, ROAS optimization indirectly improves CAC by ensuring your ad spend is focused on high-converting, cost-effective channels. By reallocating budget based on true performance, you lower waste and drive down acquisition costs over time.

4. How often should I optimize my ROAS?

Optimization should be ongoing. However, major adjustments typically follow monthly or quarterly performance reviews. That said, you should monitor ROAS trends weekly to catch early warning signs of inefficiencies or creative fatigue.

5. Can automation tools fully handle ROAS optimization?

Automation tools can handle real-time bid and budget adjustments efficiently. However, strategic decisions like audience targeting, creative testing, and interpreting mROAS still require human oversight and contextual understanding.

6. How should I prioritize channels during ROAS optimization?

Prioritize based on marginal ROAS, not just historical performance. Focus on channels where small spend increases still yield strong returns, and avoid over-investing in channels showing signs of saturation.