What is Profit On Ad Spend (POAS)?
POAS stands for Profit On Ad Spend and is the same as ROAS, except that it looks at the return in the form of profit rather than revenue. In other words, what do we actually get out of our marketing in general, selected campaigns, ads, etc. in terms of the bottom line.
POAS is calculated by subtracting the marginal costs of the sold product from the ROAS on that product. In other words, you factor in the profit margin.
POAS example
An example: you spend 1,000 DKK on advertising on social media, which generates 5,000 DKK in revenue.
That gives a ROAS of 5,000 revenue / 1,000 costs = 5 ROAS.
The profit margin on the sold products is 40%. 5,000 revenue * 40% margin = 2,000 DKK.
We then subtract the marketing costs: 2,000 - 1,000 DKK = 1,000 DKK profit.
That gives a POAS of: 1,000 DKK profit / 1,000 costs = 1 POAS.
In other words, the campaign, with a ROAS of 5, yields a POAS of 1. That means for every unit spent, 1 unit of profit is generated.
Why it is important to work with profit rather than revenue
As the example above illustrates, there is a significant difference between ROAS and POAS.
And that in itself illustrates why it is important to work with profit rather than revenue alone.
Calculating the POAS of your marketing in general, specific campaigns, ads or similar, can for instance reveal that something you thought was profitable was not at all.
Because even though revenue is important, it is the bottom line that sustains and secures the business. With POAS you look at the actual bottom line, and can therefore best evaluate your marketing efforts in relation to specific ads, products, and the overall direction.
Would you like to learn more about Profit On Ad Spend?
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