What is the advertising to sales ratio investors will look for in a direct to consumer e-commerce startup?

This is a Quora question I was asked to answer.

Do you mean the return on ad spend ratio (ROAS)?

I have never heard of “advertising to sales” ratio, but it probably means the same thing (revenue or sales divided by advertising spend…not to include media development costs or technology costs, just the costs to advertise the media).

Investors look at many things, but a strong ROAS is a way to capture their attention so that they may be more willing to take a deeper dive.

For consumer product companies, a ROAS of around 2 is breakeven on the profit and loss. If you can reliable demonstrate a consistent ROAS of 4 or more over the last 3-months with increasing media spend into the 5 figures, that might help capture attention.

But the higher the better. If you can show a 6 or more, then that should really capture attention. But you need to show consistency in achieving this ratio over time with higher spends (5 figures).

I have written more posts with ROAS and downloadable models using this ratio, here