How to Calculate True ROAS
True ROAS divides the revenue a channel caused by what you spent on it. The formula, three steps and a worked example, set against last-click ROAS.
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By Joris van Huët, Founder & CEOUpdated 2 min read
Run the numbers for your store: the free break-even ROAS calculator.
Introduction
Return on Ad Spend (ROAS) is a key metric, but traditional ROAS often overstates performance by ignoring incremental impact. True ROAS corrects this.
Formula for True ROAS
[ \text{True ROAS} = \frac{\text{Incremental Revenue}}{\text{Marketing Spend}} ]
Where:
Incremental Revenue = Revenue caused by the marketing channel, estimated by Bayesian causal inference.
Marketing Spend = Actual spend on the channel.
Step 1: Calculate Incremental Revenue
Causality Engine reads one file, the Attribution paths export from GA4, and shows what each channel caused next to what last-click gave it.
Multiply by average order value (AOV) or revenue per conversion.
Step 2: Gather Spend Data
Import accurate ad spend data per channel or campaign.
Step 3: Compute True ROAS
Divide incremental revenue by spend.
Compare against traditional last-click ROAS for context.
Why True ROAS Matters
Reflects genuine channel efficiency.
Excludes cannibalized or wasted spend.
Supports smarter budget decisions.
Example
If Facebook Ads generated 100 incremental conversions with AOV €50 and spent €3000:
[ \text{True ROAS} = \frac{100 \times 50}{3000} = \frac{5000}{3000} = 1.67 ]
Traditional ROAS might be higher due to over-crediting.
Conclusion
True ROAS provides an accurate profitability measure, essential for scaling Shopify brand marketing.
Frequently asked questions
How is incremental revenue different from total revenue?
Incremental revenue only counts conversions caused by the channel, excluding those that would have happened anyway.Can True ROAS be less than 1?
Yes, indicating the channel is not generating enough incremental revenue to cover its spend.Should I rely solely on True ROAS for budgeting?
True ROAS is critical but should be combined with qualitative factors and strategic goals.Is True ROAS comparable across channels?
Yes, since it measures causal profitability, enabling objective channel comparison.
Go deeper: Causal attribution, explained.
Sixty-second versions of these ideas: Causality Engine on YouTube Shorts.
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Keep reading
Terms in this article
- Ad SpendAd Spend is the total amount invested in advertising campaigns. It is measured against Return on Ad Spend (ROAS) to evaluate campaign effectiveness.
- AttributionAttribution identifies user actions that contribute to a desired outcome and assigns value to each. It reveals which marketing touchpoints drive conversions.
- Brand MarketingBrand Marketing builds brand awareness, recognition, and emotional connection with consumers over time.
- Causal InferenceCausal inference is the set of methods for estimating how much an outcome changes because of a cause, rather than alongside it. It works by comparing what happened with an estimate of what would have happened without the cause.
- CausalityCausality is the relationship where one event directly causes another, essential for identifying specific actions that drive desired outcomes in marketing.
- ConversionConversion is a specific, desired action a user takes in response to a marketing message, such as a purchase or a sign-up.
- Facebook AdsFacebook Ads are paid advertisements appearing on Facebook and Instagram. Businesses use them to target specific audiences based on demographics and interests.
- RevenueRevenue is the total income generated by the sale of goods or services related to a company's primary operations.