"I want a ROAS of at least X." It is one of the phrases we hear most often the first time we talk to a new ecommerce client. For years the industry has celebrated screenshots of accounts pulling 6, 8, 10 ROAS as the ultimate proof of success. The numbers look great in the report, yet very often, at the same time, cash flow keeps thinning with every euro spent.
That happens because ROAS measures only part of the result: how much revenue you make per euro spent. But making revenue is not the same as making money. And that is where POAS (Profit on Ad Spend) comes in, a metric that until recently was largely unknown and is now, alongside CAC (customer acquisition cost), the one we lead with.
POAS measures the real gross profit each euro you spend on advertising generates. It factors in your margin. That is the difference that changes everything for an ecommerce business.
For a while now, the first thing we do with our clients is shift the mindset: we work out their real gross margin, put POAS into the equation and see how much they are actually earning per euro spent. That is when the whole picture changes.
Why ROAS does not give you the full picture
ROAS divides revenue by ad spend. As a quick in-platform metric, and for comparing campaigns, audiences or ads, it does the job. But it has one problem: it treats every euro of revenue as if it were worth the same. And they are not worth the same.
A euro of revenue from a designer sofa at 55% margin is not the same as a euro of revenue from a cushion cover at 25% margin. ROAS does not care. POAS does, because it looks at real profit.
How to calculate POAS
The formula
Gross profit is your revenue minus the cost of goods sold (COGS) and the variable costs: payment gateway fees, shipping, and whatever else is relevant to your model. Ad spend is what you spent on advertising.
A worked example
A home decor store spends €2,000 on Meta Ads. It makes €8,000 in revenue. Product margin is 45%.
ROAS would be: 8,000 / 2,000 = 4.
POAS would be: gross profit, 8,000 × 0.45 = €3,600, divided by ad spend: 3,600 / 2,000 = 1.8.
Every euro spent returns €1.80 in gross profit. A ROAS of 4 sounds better when you say it out loud in a meeting. A POAS of 1.8 is the number you can take to the CFO to ask for a bigger ad budget.
Why two campaigns can share a ROAS and one makes money while the other loses it
Picture that same store with two campaigns. Both spend €2,000. Both make €8,000. Both show a ROAS of 4. But in reality:
| Campaign A: designer sofas | Campaign B: cushion covers | |
|---|---|---|
| Ad spend | €2,000 | €2,000 |
| Revenue | €8,000 | €8,000 |
| ROAS | 4 | 4 |
| Margin | 55% | 25% |
| Gross profit | €4,400 | €2,000 |
| POAS | 2.2 | 1.0 |
The first sells designer sofas. 55% margin. Gross profit: €4,400. POAS: 2.2.
The second sells cushion covers. 25% margin. Gross profit: €2,000. POAS: 1.0.
Same ROAS, completely different worlds. The sofa campaign leaves €2.20 of clean profit per euro spent. The cushion cover campaign barely recovers what it cost to run, with nothing left over.
With ROAS, you would scale them both. With POAS, you scale one and pause the other until you review prices and margins.
What counts as a good POAS
There is no exact figure. A good POAS is the one that covers your fixed costs and still leaves profit after that. It depends on how your business is built.
There is one reference point, though: a POAS of 1.0 means gross profit exactly equals what you spent on advertising. Break even.
From there, the heavier your fixed-cost structure, the higher your POAS needs to be for the operation to be profitable. If your fixed costs are high (say, a team of ten, tools, logistics), a POAS of 1.5 barely leaves you room: €1,500 of gross profit minus operating costs leaves little margin. If they are low (a small team, few tools), a POAS of 1.2 can work.
That is why I would be wary of anyone promising a "target POAS" without first looking at your margin and your cost structure. Your number is yours. It is not an internet benchmark.
POAS vs ROAS: what each one is for
So ROAS is useless? No, that is not it either. It answers a different, useful question: how much revenue each euro returns. It is a good operational signal for the day-to-day, for optimising inside the platform.
POAS answers another: how much profit each euro returns. That is what you need to decide whether to scale, hold or stop a campaign.
Put another way: ROAS optimises campaigns. POAS protects your profitability.
Ideally you use both. ROAS as the quick daily signal. POAS as the strategic decision metric.
If you want to go deeper into when to use each and why looking at ROAS alone can cost you money, we develop it further in POAS vs ROAS: what they measure and which one you should use.
What you need to start measuring POAS
POAS is more demanding than ROAS because it needs data the platform does not hand you:
- Your real gross margin per product. Not the theoretical one. Deduct COGS, gateway fees, and shipping if it varies by product.
- Up-to-date cost data. If you run a promotion, the discount eats into your margin. The campaign keeps generating revenue, but POAS drops. You have to account for it.
- Coherent attribution. Knowing what profit you generate with each euro you spend.
Pulling all of this together takes work. That is why many brands stay with ROAS. But it is worth it the moment you realise you were making decisions blind.
The mistakes most people make
Using margin on paper. If you do not deduct returns, discounts and real fees, POAS comes out inflated. You are back where you started.
Ignoring variable costs. If shipping or the gateway weigh on your model and you do not subtract them, POAS stops telling you the truth.
Comparing POAS across very different products without context. The designer sofa and the cushion cover are not in the same league. Each has its own threshold.
How to start today
If right now you only look at ROAS, here is what I would do:
Step 1: Work out your real gross margin by product line. Apply it to the revenue your campaigns generate. That alone will already show you which of your investments makes you money and which only makes you revenue.
Step 2: Build reporting that connects ad spend to your P&L, not to the scattered metrics of each platform.
That is what lets you scale on judgement instead of blind.
Frequently asked questions
What is the POAS formula? POAS = gross profit / ad spend. Gross profit is revenue minus COGS and variable costs (fees, shipping).
What should my target POAS be? There is no magic number. It depends on your cost structure. As a reference, a POAS of 1.0 is break even. From there, you need to cover fixed costs with the remaining margin.
So is ROAS useless? No. ROAS is still useful as a daily operational signal for optimising campaigns. POAS is for strategic budget decisions.
What if my margins vary a lot between products? That is one of the biggest benefits of POAS: you see which products are genuinely profitable in advertising, not just which ones bring in the most revenue. You can pause high-volume, low-margin products and scale the high-margin ones.
The bottom line: shift the mindset
The reality is simple: if your POAS is not calculated properly, you are making decisions on incomplete information. It is like driving blind. Shifting from ROAS to POAS is not just changing a number in a report; it is changing how you look at the profitability of your business.
At STRAT we work to make our clients real money, not to make the metrics look profitable. That is why POAS is the metric that orders our decisions and defines how we structure, optimise and report every paid media campaign, above the platform's gross ROAS.
