Apple vs. Microsoft, Coca-cola vs. Pepsi, Taylor Swift vs. Kanye West… Everyone has their preference when it comes to certain historic rivalries. 

Whilst the world of paid media isn’t quite as exciting, interesting, or pop culture-penetrating as any of the above, one question has had marketers picking sides, fighting fierce battles (on LinkedIn of course), and running endless comparisons in an attempt to determine which is best:

POAS (Profit on Ad Spend) or ROAS (Return on Ad Spend)?

Tracking the right metrics can make or break ad campaigns, so it’s no wonder that opinions are pretty split. Take a look at this poll from PPC Influencer Navah Hopkins: 

Traditionally, marketers have relied on ROAS to effectively measure ad effectiveness. Yet, in many industries (most notably eCommerce and Web shops) ROAS is increasingly being replaced with POAS. 

So which of the two metrics should you be using, and why? 

On a recent episode of the Paid Media Lab podcast, we spoke to all-round ad aficionado Adriaan Dekker–who happens to be a firm believer in using POAS over ROAS. 

Adriaan is well-known in the PPC community for documenting every Google Ads platform update since launching his newsletter in 2022. 

As such, thousands of performance marketers rely on Adriaan’s insights into the world of paid media to keep them in-the-know about new updates, informed on the latest in strategy, and at the top of their marketing game. 

Watch the full episode below to discover his insightful takes on why POAS is the more effective metric, along with in-depth chats about the best ways to track and implement POAS in real-world scenarios: 

Timestamps: 

0:00 - Intro

3:25 - POAS vs ROAS explained

5:02 - POAS for different businesses: which types of businesses can benefit most from POAS

6:28 - B2B Webshop Trends: Adriaan notes the growing trend of B2B companies using webshops.

6:02 - Accurately calculating profit margins

7:20 - Essential prep/considerations before transitioning to POAS

8:38 - POAS and budget allocation: how to shift budget allocation to more profitable products

9:47 - Impact of POAS on automated bidding strategies

11:20 - Google Ads gross profit optimization: Getting POAS from third party tools vs. Google

13:20 - How/when other platforms may follow Google's lead and adopt POAS

14:58 - Using Profit Metrics for POAS & offline conversion tracking

16:16 - Additional resources Adriaan recommends for getting started with POAS

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For all of Adriaan's POAS tips, tricks, and insights, watch the full episode of the Paid Media Lab podcast above – and make sure to subscribe to the Lunio YouTube channel to watch full episodes of the Paid Media Lab podcast, featuring insights from top PPC professionals.

Alternatively, follow the podcast on Spotify, Apple Podcasts, or Amazon Music to get new episodes delivered straight to your feed.

What is ROAS? (the traditional approach)

ROAS, or Return on Ad Spend, is the traditional metric that many businesses use to measure the effectiveness of their advertising campaigns. In short, it calculates the revenue generated for every dollar spent on ads.

• How it works: If you sell a product for $100, that $100 is sent to Google Ads as revenue.
• The problem: While it has been the industry standard for years, ROAS doesn't account for the varying profit margins of different products. 

For instance, you might have one product needing an 800% ROAS and another needing 400%. This makes it hard to determine how much to bid. 

You could split campaigns, but that may lead to less data for each.

What is POAS? (the profit-focused approach)

POAS, or Profit on Ad Spend, is a metric that focuses on the actual profit generated from ad spend. Instead of sending the revenue to Google Ads, you send the profit.

• How it works: If you sell a product for $100 but make a profit of $30, you send $30 to Google Ads.

The advantages of POAS

With POAS, if the profit is above one, you are making a profit. This makes it a more accurate and effective way to optimize bids for individual products with different margins. 

The key advantages of POAS can be summarized as the following: 

• Increased transparency: POAS allows you to see which campaigns are profitable and which aren’t.
• Inclusive: POAS accounts for variations in margins, promotions, shipping costs, payment fees, and other variable and fixed costs.
• Simpler: It’s easier to measure and understand real performance using POAS.

Who benefits most from POAS?

POAS is especially beneficial for businesses that sell products online. It’s helpful for both B2C and B2B companies–and can prove especially beneficial for those with webshops. 

Those likely to benefit most from using POAS as a primary metric include: 

• Web shops & eCommerce brands with different margins: If you have multiple products with varying profit margins, POAS can help you optimize bids more effectively.
• Brands in competitive markets: In competitive markets, focusing solely on ROAS might lead to spending heavily to hit revenue targets, even if profits are thin. POAS ensures you account for the impact of competition on profit margins.
• Subscription-based businesses: Subscriptions often have customer lifetime value (CLV) as a critical metric, and profitability depends on retention over time. POAS helps you align ad spend with long-term profits rather than immediate revenue.
• Businesses with significant overhead costs: Overheads like shipping, warehousing, or production costs can eat into revenue. POAS accounts for those costs by focusing on net profit rather than gross revenue.
• Mature businesses with profit goals: Established businesses often prioritize profitability over growth, and POAS is ideal for ensuring ad spend aligns with financial goals.
• Companies who know their margins inside and out: Implementing POAS requires knowing your margins and having a system to track them, such as a tool like Profit Metrics, or through Google with cost of sold goods.

Calculating your margins

Calculating your profit margins is essential for using POAS effectively. If you’re looking to introduce POAS, keep the following in mind: 

• Include all costs: Remember to factor in shipping costs, which can sometimes be overlooked. Some companies might lose money if their POAS is too aggressive.
• Consider customer lifetime value: While POAS is great for calculating the profitability of individual sales, take into account customer lifetime value. You might take a loss on a first order but make more over the long term.

How POAS affects budget allocation

Using POAS can change your budget allocation. You’re more likely to gain volume for lower ROAS products, as they may have higher profit margins.

• More volume for certain products: Products with lower ROAS but high profit margins will likely get more volume using POAS.

POAS and automated bidding strategies

Switching from ROAS to POAS can’t be done overnight. 

• Check Your Daily Budget: When switching from ROAS to POAS, it's important to review your daily budget, as the change in value may affect Google's averages. Your budget may be limited without you knowing it.

Google Ads and POAS

Google Ads has recently announced a beta feature that allows advertisers to optimize for gross profit.

• Third-party tools: Previously, you needed a third-party tool like Profit Metrics to optimize for POAS.
• Beta testing: The Google Ads gross profit optimization feature is in beta, and access is limited. This new feature focuses on the cost of sold goods, not including shipping costs.
• Google is slow to change: Because Google is such a large company, changes take time to roll out.

The future of POAS

Other ad platforms are likely to follow Google's lead and incorporate similar features. Here’s why:

• Some platforms already use it: You can already use POAS on Meta and Bing using Profit Metrics (more on that below)
• Increased focus on POAS: Because POAS is arguably the best bidding strategy currently available, other companies will likely be testing it internally.

Tools for using POAS

If you're serious about using POAS, Adriaan recommends considering a tool such as Profit Metrics.

Tools like these allow you to account for shipping and payment costs, and some have advanced server-side tracking systems (often called ‘conversion boosters’). 

Adriaan mentioned that one user found it helped him track 20% more conversions.

Offline conversion tracking

For businesses that don't have web shops, such as those that capture leads through forms or calls, offline conversion tracking is essential for measuring POAS. 

• Adriaan recommends using call tracking or other offline conversion tracking solutions (like Zapier) or enhanced leads.

Final thoughts & additional resources

The shift from ROAS to POAS is a significant one. As Adriaan mentioned, it can be highly beneficial–yet requires a deep understanding of margins, and a readiness to adapt your strategies. 

Ultimately, a focus on profit rather than just revenue can enable you to make better decisions and achieve more sustainable growth. And more brands are beginning to realise this, as POAS often emerges as the superior metric in a diverse range of important scenarios. 

For additional information and context on switching from POAS to ROAS, make sure to watch Adriaan’s full episode of the Paid Media Lab podcast (embedded above). 

And for more in-depth discussions on the very latest in PPC news & strategy, subscribe to the Lunio YouTube channel to watch all episodes of the Paid Media Lab podcast as they’re released, or listen to the episodes wherever you get your podcasts: 

• Listen on Spotify
• Listen on Apple Podcasts‍
• Listen on Amazon Music

Additional resources: 

• Connect with Adriaan on LinkedIn - get in touch with Adriaan to get more information on POAS and offline conversion tracking 
• Adriaan’s Google Ads Newsletter

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