What it means
Divide the sales an ad produced by what the ad cost. Spend £1,000 and see £4,000 of sales and your return on ad spend is 4, often written 4x. Note the word sales: this is a revenue ratio, and your own costs are nowhere in it.
Why it matters to a small business
It is the number every ad platform puts in front of you, so you need to know what it is not telling you. The platform knows what it charged you and what the till rang. It does not know what your stock, your staff or your rent cost, so it cannot tell you whether the campaign made you a penny.
You spend £1,000 and the campaign brings £4,000 of sales. Your gross margin on those products is 25%.
£4,000 of sales at 25% margin leaves £1,000 of gross profit, against £1,000 of spend
A 4x return that broke exactly even before you paid for anything else. The break-even multiple is one divided by your margin, so at 25% you need better than 4x just to stand still.
The bit people get wrong
Work out your own break-even multiple before you look at another dashboard. Owners with fat margins get rich at 2x and owners with thin margins go backwards at 5x, and both are reading a number the platform coloured green.