Many online stores steer their ads on ROAS and then wonder why sales go up but profit does not. The answer often lies in the difference between ROAS and POAS.
What is ROAS?
ROAS (Return on Ad Spend) = revenue from ads ÷ ad cost. If you spend SEK 10,000 and sell for SEK 50,000, your ROAS is 5 (or 500%). It is easy to measure, but it says nothing about your margin.
What is POAS?
POAS (Profit on Ad Spend) = gross profit from ads ÷ ad cost. In the same example with a 30% margin, gross profit is SEK 15,000 and POAS is 1.5. Anything above 1.0 means the ads make money after product costs.
Why the difference matters
Two products with the same ROAS can have completely different profitability. A product with a 60% margin and one with 15% look identical in ROAS, but only one of them makes a profit. If you steer on ROAS, you risk putting budget into what sells the most – not what earns the most.
When should you use which?
- ROAS works when margins are roughly the same across products, or when you lack cost data.
- POAS is better when margins vary a lot, when discounts and shipping eat into profit, or when the goal is profitable growth.
Run the numbers yourself
Try my free tools: the ROAS calculator and the POAS calculator. Enter revenue, ad cost and margin and you will see straight away whether your campaigns are profitable.
Want to steer your campaigns on profit instead of revenue? Request a free review.