The ROAS Trap: Why High Returns Don’t Always Mean Real Profit
Introduction
Return on Ad Spend (ROAS) is one of the most quoted metrics in Google Ads reports. Agencies love it. Dashboards celebrate it.
But here’s the uncomfortable truth: ROAS doesn’t equal profit.
A campaign can show 600% ROAS – and still lose money once you factor in product margin, fulfilment costs, and returns.
This post explores why chasing ROAS can be misleading – and the questions every retailer should ask to uncover what’s really driving profit.
3 Hidden ROAS Profit Leaks
1. Low-Margin “Winners”
Do products with strong ROAS actually make money once margin and fulfilment are included? High ROAS on low-margin SKUs often hides losses.
2. Contribution Blind Spots
Do reports calculate contribution after costs such as fulfilment, shipping, and returns – or just revenue vs ad spend? Without this, results are inflated.
3. Volume Illusions
Are we celebrating impressive ROAS numbers on tiny sales volumes that don’t move overall profit? High percentages can distract from low impact.
Case in Point: The 600% ROAS Account
We audited a retailer whose agency proudly reported a 600% ROAS.
On paper, it looked like a success. But after a deeper analysis:
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PMax conversions were dominated by branded search
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Top-selling SKUs carried margins under 25%
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Fulfilment costs meant “profitable” orders were actually loss-making
Scaling that setup didn’t increase profit – it scaled the losses.
After restructuring campaigns around profit rather than revenue, spend shifted toward higher-margin SKUs. Reported ROAS fell, but contribution margin rose.
The Founder’s Checklist: ROAS
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Are we optimising for profit contribution, not just revenue?
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Do any products look strong on ROAS but collapse once margin and fulfilment are applied?
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How are fulfilment and shipping costs factored into our reporting?
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Would profit rise or fall if we cut spend on low-margin SKUs?
Closing Note
High ROAS can look impressive – but it’s meaningless if margin isn’t there.
As a founder, you don’t need to know every calculation, but you do need to ask the right question: are we chasing revenue, or growing profit?
