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POAS - Profit on Ad Spend

POAS (Profit on Ad Spend) is an advanced version of ROAS that measures the actual profit - not just revenue - per ad dollar. It gives a more accurate picture of the true profitability of your campaigns.

What is POAS?

POAS is calculated by dividing the gross profit a campaign generates by the ad spend. While ROAS only looks at revenue, POAS takes into account that different products have different margins.

Formula: POAS = Gross profit / Ad spend

Example: You spend $10,000 on ads that generate $40,000 in revenue. Your ROAS is 4.0. But if the gross profit is 40% ($16,000 profit), your POAS is 1.6. And with a 60% profit margin ($24,000), POAS is 2.4.

Why POAS is better than ROAS

ROAS can be misleading because it doesn't distinguish between high and low margin products:

  • Scenario A: $40,000 revenue with 30% profit = $12,000 profit. Minus 10,000 DKK ad spend = 2,000 DKK real profit.
  • Scenario B: 30,000 DKK revenue with 60% profit = 18,000 DKK profit. Minus 10,000 DKK ad spend = 8,000 DKK real profit.

ROAS says that scenario A is better (ROAS 4 vs. 3). POAS correctly says that scenario B is more profitable (POAS 1.8 vs. 1.2).

How to implement POAS

To measure POAS, you need to send profit data - not just revenue - to your ad platforms:

  1. Calculate gross profit per product: Selling price minus cost of goods sold (COGS) for each product.
  2. Send profit data as conversion value: Instead of (or in addition to) revenue, send gross profit to Google Ads or Facebook.
  3. Optimize campaigns for profit: Use target ROAS bidding (with profit as value) to let the algorithm optimize for profit instead of revenue.

POAS and Google Ads

Google Ads' Smart Bidding can optimize for the value you send as conversion data. If you submit gross profit instead of revenue as the conversion value, it will:

  • The algorithm will bid more aggressively on clicks that lead to high-profit products
  • The budget will automatically shift away from low-margin products
  • Your real profit per ad dollar will improve over time

Challenges to overcome

  • Data complexity: You need to know the gross profit for each product and keep it up to date. This requires integration between your online shop and the ad platform.
  • Variable costs: Shipping, returns and discounts affect the real profit margin and are harder to include in real-time.
  • Implementation: Typically requires server-side tracking or custom data layers (dataLayer) in Google Tag Manager to send profit data.

When should you use POAS?

POAS provides the most value when:

  • You sell products with widely varying margins (e.g. 20% on electronics and 60% on accessories)
  • Your campaigns are large enough that the difference between revenue and profit optimization is significant
  • You have access to product cost data and can calculate margins per item

We know online marketing in Shoporama

We've been working with online marketing ourselves for decades. As the only shop system in the country, we have spoken multiple times at conferences such as Marketingcamp, SEOday, Shopcamp, Digital Marketing, E-commerce Manager, Ecommerce Day, Web Analytics Wednesday and many more.

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