In the digital advertising landscape, two metrics stand tall in evaluating the success of online
campaigns: Return on Ad Spend (ROAS) and Profit on Ad Spend (POAS). ROAS has long been
a standard KPI for measuring the gross revenue earned for every pound spent on advertising.
However, as marketing strategies evolve, there’s been a shift towards a more comprehensive
evaluation of profitability. This is where POAS comes in, providing a nuanced view by
accounting for the actual profit generated from ad spend, rather than just revenue.
POAS, an offering from ProfitMetrics.io, takes into account the cost of goods sold, ad spend,
and other expenses to present a transparent picture of an advertising campaign’s true
profitability. Unlike ROAS, which primarily focuses on revenue, POAS ensures that a business
measures and understands the profit generated from each pound invested in advertising efforts.
Profit bidding and POAS marketing are becoming increasingly significant for businesses
seeking an accurate assessment of their campaigns on platforms such as Facebook and
Google Ads. It proves particularly useful for e-commerce platforms where understanding the
profit margin at the product level is crucial. Innovations such as the algorithm from
ProfitMetrics.io enable advertisers to optimise their bids and strategy based on profit, ensuring
more informed decision-making and potentially higher returns on their ad spend.
Understanding ROAS and POAS
Return on Ad Spend (ROAS) and Profit on Ad Spend (POAS) are two critical metrics in digital
marketing, especially for e-commerce platforms. Marketers utilise these metrics to gauge the
efficiency of advertising campaigns on Google Ads and Facebook Ads.
ROAS is the gross revenue earned for every pound spent on advertising. Simply put, it’s a
measure of revenue on ad spend. This metric offers insights into the direct impact of advertising
efforts on sales, but it does not account for the cost of goods sold (COGS).
ROAS breakeven occurs when the revenue generated equals the advertising spend, indicating
neither profit nor loss.
POAS, on the other hand, is a more nuanced metric. It provides an understanding of the actual
profit on ad spend once COGS and additional expenses are deducted from the revenue
generated by the ad spend. The goal here is to surpass the POAS breakeven point, where the
generated profit exceeds the ad spend.
● ROAS calculation:
(Revenue from Ads / Ad Spend) x 100%
● POAS calculation:
[(Revenue from Ads – COGS) / Ad Spend] x 100%
It’s become critical for modern e-commerce marketing strategies to leverage marketing
automation tools for calculating these metrics accurately and in real time. Platforms such as
ProfitMetrics.io enhance this process by providing algorithms designed to calculate POAS,
enabling smarter and more profitable ad spend decisions.
In practical terms, a POAS greater than 1 implies a profitable campaign. Hence, marketers can
identify not only those campaigns that generate revenue but also those that contribute real
profit, allowing for more informed strategic decisions.
Related: Unlocking the Power of Proxy Servers