PPC Fundamentals  ·  2026

What Is ROAS and How to Calculate It for Local Businesses

ROAS looks simple, but for local service businesses the number only means something once you factor in your margins and your tracking.

ppc360ads.com  ·  Updated 2026

If you've spent any time in a Google Ads account or talked to a marketing agency, you've heard the term ROAS. It stands for return on ad spend, and it's the number most advertisers use to judge whether a campaign is working. But for local service businesses (plumbers, HVAC companies, law firms, dental clinics), ROAS for local businesses works a bit differently than it does for an e-commerce store. If you track it the wrong way, you'll make bad budget decisions. This article explains what ROAS is, how to calculate it correctly, and what target to aim for based on your margins.

The ROAS Formula

The calculation itself is simple:

ROAS = Revenue from Ads ÷ Ad Spend

If you spent $1,000 on Google Ads and those ads generated $4,000 in revenue, your ROAS is 4.0 (or 400%). That means you earned $4 for every $1 spent on advertising.

ROAS is usually expressed as a ratio (4:1 or 4x) or as a percentage (400%). Both mean the same thing. A ROAS of 1.0 means you broke even on revenue, but not on profit, because your product or service has its own costs. More on that below.

What Counts as a Good ROAS for Local Service Businesses

There's no universal answer, but there are benchmarks worth knowing. According to 2025–2026 industry data, the median ROAS across all Google Ads campaigns sits around 3.52:1. For HVAC businesses specifically, the median is 4.37x, with top-performing accounts exceeding 10x.

The problem with chasing an industry average is that it ignores your margins. A 4x ROAS looks great on paper, but if your gross margin is 20%, you're still losing money. That's why the number that actually matters is your break-even ROAS.

Break-Even ROAS: The Number That Really Matters

Break-even ROAS tells you the minimum return you need before your ad spend becomes profitable. The formula:

Break-Even ROAS = 1 ÷ Gross Profit Margin

Here's how it plays out for different margins:

A plumbing company with 25% margins needs at least a 4x ROAS just to break even on ad spend, matching what the HVAC industry median actually delivers. If your margins are tighter, say 20%, you need a 5x ROAS before ads become worthwhile.

Why ROAS Is Harder to Track for Local Services

Here's the catch for service businesses: you're not selling products at a checkout page. You're generating phone calls, contact form submissions, and appointment bookings. Google doesn't automatically know the revenue value of a phone call, you have to tell it.

There are two ways to handle this in Google Ads conversion tracking:

1. Assign a fixed value per lead. If your average job value is $600 and you close 40% of leads, assign a value of $240 to each conversion ($600 × 0.40). This gives the algorithm a number to optimize against, even if it's an estimate.
2. Import actual revenue from a CRM. If your CRM tracks closed deals, you can feed that data back into Google Ads via offline conversion imports. This is more accurate but requires a proper setup.

ROAS vs. ROI: Not the Same Thing

These terms get used interchangeably, but they measure different things.

ROAS only looks at ad revenue vs. ad spend. It ignores everything else: labor, materials, overhead, software, agency fees.

ROI (return on investment) includes all business costs. If you spend $1,000 on ads, pay a $1,500 agency fee, and the resulting jobs cost $2,000 in labor, your ROI calculation includes all of that, not just the media spend.

Use ROAS to evaluate individual campaigns and ad performance. Use ROI to evaluate whether paid advertising as a whole is contributing to your bottom line. Both are useful, just don't confuse one for the other when reporting results to yourself or your team.

Target ROAS in Google Ads: Should You Use It?

Google Ads offers a Smart Bidding strategy called Target ROAS, where you tell the algorithm what return you want and it adjusts bids automatically. It sounds appealing, but there are real limitations for smaller local service accounts.

Target ROAS requires roughly 50 or more conversions with assigned values within 30 days before the algorithm stabilizes. Most local service businesses (a plumber running $2,000/month in ads, for example) don't hit that threshold. If you set a target and the algorithm doesn't have enough data, it will restrict impressions aggressively to stay "safe," and your lead volume will collapse.

In my experience, Target CPA (cost per lead) is more practical for local service businesses than Target ROAS, especially at lower monthly budgets. It requires less conversion data and optimizes for volume rather than a revenue figure you're estimating anyway. Move to Target ROAS only when your account generates consistent conversion data at volume, typically $10,000+ in monthly ad spend with solid tracking.

ROAS is a useful metric, but only if the inputs are clean. If your conversion tracking is broken or your conversion values are wrong, ROAS is just a number that feels good. The first step is always making sure you're measuring the right things. If you're running Google Ads for your service business and aren't sure whether your tracking is set up correctly, I offer free account audits at ppc360ads.com, happy to take a look at what's actually happening in your account.