POAS - Profit on Ad Spend

What is POAS?

POAS is calculated by dividing the gross profit generated by a campaign by the ad spend. Whereas ROAS only considers revenue, POAS takes into account that different products have different profit margins.

Formula: POAS = Gross Profit / Ad Spend

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

Why POAS Is Better Than ROAS

ROAS can be misleading because it doesn’t distinguish between products with high and low profit margins:

• Scenario A: 40,000 DKK in revenue with a 30% margin = 12,000 DKK in profit. Minus 10,000 DKK in ad spend = 2,000 DKK in actual profit.
• Scenario B: 30,000 DKK in revenue with a 60% profit margin = 18,000 DKK in profit. Minus 10,000 DKK in advertising costs = 8,000 DKK in actual profit.

ROAS indicates that Scenario A is better (ROAS 4 vs. 3). POAS correctly indicates 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: Sales 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 the gross profit to Google Ads or Facebook.
3. Optimize campaigns for profit: Use target ROAS bidding (with profit as the value) to let the algorithm optimize for profit instead of revenue.

POAS and Google Ads

Google Ads’ Smart Bidding can optimize based on the value you send as conversion data. If you send gross profit instead of revenue as the conversion value, the algorithm will:

• The algorithm bid more aggressively on clicks that lead to high-profit products
• The budget will automatically be shifted away from low-margin products
• Your actual profit per advertising krone will improve over time

Challenges

• Data complexity: You need to know the gross margin for each product and keep it up to date. This requires integration between your online store and the ad platform.
• Variable costs: Shipping, returns, and discounts affect the actual gross margin and are more difficult to account for 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 profit 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 the markup per item