Profit on Ad Spend (POAS) is a return on investment metric for online marketing and advertising campaigns. ROAS short form for Return On Advertising Spending. But actually is mostly used in eCommerce as revenue on ad spends.
It’s important to think about the difference between profit and revenue when optimizing and bidding in Google ads, because you will be bidding for the bottom line (POAS) instead of the top line (ROAS) which includes taxes, shipping, etc. This means that your profit on ad spend will include costs like product cost prices, payment feeds, and shipping expenses. So you are seeing the full transparency of your marketing spend.
This way you can let Google and Facebook algorithms optimize for the profit instead of the revenue. This allows them to show when they have reached their break-even point which should be at one (1), because this is where they make equal amounts of both profits as well as advertisement spends. If it goes over one then that means that they will continue making a profit, but if they go below one then this implies that there were not able to generate enough money from adverts or sales in order to cover all expenses
This tactic will increase the profitability of your ad spend and can allow you to scale much more. Simply by shutting down all the ads that are not profitable, and allocating your budget where it makes a profit.
In Google shopping, the highest ad spend is allocated to where the revenue comes and it often happens that products with a lot of competition and high searches are there. But this is also sometimes where you can be unprofitable and products with lower revenues often bring in profit because accessories have higher margins.
One of the major reasons why eCommerce market leaders are moving to use POAS as the main KPI in marketing channels like Google and Facebook is because they can outbid and outperform their competitors.
You may be asking yourself why more businesses aren’t using profit as a metric instead of revenue. The problem is that it’s extremely difficult to get Profit bidding up and running. However, new companies are starting to develop this type of software so everyone can use it, not just the Fortune 500 companies
Computer mouse: concept of pay per click -DepositPhotos