What is POAS - profit on ad spend?

Profit on ad spend (POAS) is a metric that’s used in digital advertising to evaluate your ad campaigns’ profitability. It measures the profit you’ve generated for every dollar (or other currency) that you’ve spent on advertising. It’s similar to return on ad spend (ROAS), but POAS factors in profit and not just revenue. 

How do you calculate POAS?

To calculate POAS, you first need to determine your profit from ads. This value is calculated by subtracting your costs of goods sold from your ad revenue. 

Then, you divide this answer (your profit from ads) by your ad spend which is the total amount spent on advertising. 

Why is POAS important in e-commerce?

POAS offers a more accurate measure of your ad performance than other traditional metrics like ROAS as it measures the actual profit instead of simply the revenue. Just because a campaign has generated a lot of revenue doesn’t mean it was profitable. 

POAS will highlight hidden losses like transaction fees, discounts, and cost of goods sold to show the real financial results. 

It also supports long-term growth. Measuring your POAS allows you to prioritise profit to ensure your business remains sustainable. 

Best practices in measuring POAS

Ensure accurate data collection

Inaccurate data can lead to inflated POAS values. As such, it’s best that you integrate your ad platforms with your e-commerce platform and backend systems to ensure that the values you use in your formula are accurate. 

Then, to ensure that you’re working with clean data, exclude test orders, staff purchases, or fraudulent activity, like bot activity, from your analytics. 

Use granular tracking

Granular tracking gives you more precise, actionable insights into what’s actually driving profit. It’s a good idea to measure it at campaign and product level. This will help you to prevent over-investing in ads featuring products with lower margins. 

Segment your analysis

Your POAS can also vary significantly among different target audiences. For example, some customer segments may appear unprofitable with their first purchase but can become very profitable over time. As such, segment your analysis by new and returning customers.  

You can also segment it by:

• Device type

• Geography

• Platform (e.g. Google, Meta, or TikTok)

• Campaign

• Platform/channel

• Ad creative

Regularly review and refine

It’s recommended that you reassess your profit assumptions regularly or whenever there are any major changes in platform algorithms or costs. Then, use these findings to shift budget from campaigns and products that generated a low POAS to those that performed higher. 

Common mistakes in measuring POAS

Examples of common mistakes in measuring POAS include:

• Relying just on platform-reported numbers and ignoring first-party analytics

• Calculating POAS too soon after purchase and failing to update it when there’s a return or refund

• Basing your calculations on inaccurate or incomplete data caused by poor platform integrations

• Overlooking lifetime value (LTV)

• Aggregating POAS across multiple campaigns or product categories

• Using gross sales or checkout value as the basis for profit

• Excluding operational costs like shipping, platform fees, payment processing fees, etc. 

Learn how ROAS Goal Optimization helps you maximize returns by automatically targeting high-value conversions here.