The conversation goes something like this. You ring a mate who runs a plumbing business. You ask how the ads are tracking. He says his agency tells him the campaigns are pumping. ROAS of 5. Cost per lead is down. Everything green on the dashboard. So why does his bank account look the same as it did six months ago?
This is the single biggest reason I hear service business owners say their Google Ads “isn’t working” while the agency dashboard insists it is. Both can be right at the same time. The gap between them comes down to one number nobody is calculating: your true ROAS.
Here’s what’s going on, and a simple way to fix it for your own business.
What does ROAS actually mean?
ROAS stands for return on ad spend. It’s the simplest version of return on investment, calculated for ad campaigns. The maths is just:
Revenue from ads ÷ Ad spend = ROAS
Spend $2,000 on Google Ads, book $10,000 in jobs from those ads, your ROAS is 5. For every dollar you put in, five came back.
Sounds great. And it would be, if every dollar of revenue was profit. For a service business, that is never the case.
Why a 5x ROAS can still leave you broke
The number your agency reports is revenue. The number that pays your bills is profit.
Service businesses don’t operate at software margins. Once you book a job, you’ve got to do the job. Materials. Labour. Travel. Equipment. Fuel. Insurance. The Australian Taxation Office’s small business benchmarks put gross margins for many trade and service businesses somewhere between 20% and 50%, depending on the trade.
Take a kitchen reno business sitting on a 40% gross margin. They run a Google Ads campaign and earn back a 5x ROAS.
- Ad spend: $2,000
- Revenue from ads: $10,000
- Gross profit (40% of $10,000): $4,000
- Profit after ad spend: $4,000 minus $2,000 = $2,000
That’s a 1x return on actual profit. They’ve doubled their investment, but they haven’t grown the business much. And we still haven’t paid the office rent, the bookkeeper, or the owner.
Now run the same numbers at a 30% gross margin (typical for high-cost-of-goods trades like pool installation):
- Revenue from ads: $10,000
- Gross profit: $3,000
- Profit after ad spend: $3,000 minus $2,000 = $1,000
A 5x surface ROAS just turned into a $1,000 return on a $2,000 spend. That’s the dashboard telling you “everything’s working” and the bank account asking why you’re going backwards.
Which numbers do you need to know first?
Before you can calculate true ROAS, you need three numbers. Don’t guess. Pull the actuals out of your accounting software, or get your accountant to send them through.
- Your average job value, or average customer lifetime value if jobs repeat.
- Your gross margin as a percentage. This is revenue minus cost of goods sold (materials, sub-contractors, direct labour for the job, vehicle costs allocated to that job), divided by revenue.
- Your fixed monthly overheads. Rent, software, admin staff, and your own wage.
If you don’t know your gross margin, that’s the first project. Without it, every marketing decision you make is a guess wearing a suit.
How do you work out your true ROAS?
Here’s the simplified formula:
True ROAS = (Revenue from ads × Gross margin %) ÷ Ad spend
Same plumber, same campaign. Revenue $10,000. Margin 35%. Ad spend $2,000.
True ROAS = ($10,000 × 0.35) ÷ $2,000 = 1.75x
That’s the real number. For every dollar in ads, $1.75 came back as gross profit. After paying the campaign’s share of your overheads and your own wage, the leftover is smaller again.
A useful rule of thumb for service businesses: if your true ROAS is below 2x, the campaign is breakeven at best. Aim for 3x or higher on true ROAS, not surface ROAS.
What happens when you have the number?
A few things shift once you start tracking true ROAS.
You have a different conversation with your agency. The argument is no longer “is this working” in the abstract. You’re asking specific questions: what’s the average job value from these clicks, how much of that revenue clears as gross profit, and what’s the trend over the last three months? The key advantage is that you can leverage Google’s smart bidding algorithm to optimise your campaigns and achieve your desired ROAS, ensuring their success.
You stop scaling losers. A campaign with a 7x surface ROAS in a 28% margin niche might be less profitable than a 4x campaign in a 60% margin niche. You’d never know until you ran the numbers.
The ads industry has spent years training service business owners to obsess over cost per lead, and click-through rate. Those numbers matter. But none of them pay your wages. Profit does. And profit only shows up when you bake your real margin into the maths from day one.
