Why POAS is better than ROAS
Profit on Ad Spend reveals the truth about your advertising profitability – not just revenue.
Profit on Ad Spend (POAS) is the evolution of traditional ROAS. While Return on Ad Spend only measures revenue relative to ad costs, POAS accounts for actual margin – and thus shows the true profitability of your advertising efforts.
The ROAS problem: An example
Imagine two campaigns, both with $1,000 ad budget:
- 1 Campaign A: $5,000 revenue, 20% margin = $1,000 profit → POAS 1.0
- 2 Campaign B: $3,000 revenue, 60% margin = $1,800 profit → POAS 1.8
Campaign A has a ROAS of 5.0, Campaign B only 3.0. By ROAS, A looks better – but by POAS, B is 80% more profitable. This is the crucial difference.
Calculating POAS correctly
For a meaningful POAS calculation, you need:
- 1 Product-specific margins: Not the average, but the actual margin per product or category.
- 2 Return rate: Account for the fact that some revenue is lost to returns.
- 3 Variable costs: Shipping, payment, packaging – everything that reduces margin.
The extended formula is:
POAS = (Revenue x Margin x (1 - Return Rate)) / Ad Spend
Implementing POAS in practice
Modern advertising systems like Google Ads enable POAS-based bidding strategies through conversion value transmission:
- 1 Define margin per product: Store contribution margin in backend or feed.
- 2 Transmit conversion value: Send margin as conversion value instead of revenue.
- 3 Set target POAS: The system automatically optimizes toward your target POAS.
This method is significantly more effective than traditional ROAS optimization, as the system learns which products are truly profitable – not just which generate the highest revenue.