ROAS vs POAS: What is the Best ROI Measurement for Your Business?
- Wandana Raghoenath
In the online marketing world, the terms ROAS and POAS are well-known metrics. ROAS stands for Return on Advertising Spend, while POAS stands for Profit on Advertising Spend. Both metrics help marketers and advertisers measure the effectiveness of their advertising costs, but they focus on different aspects. Which metric is most important for you, and how should you focus on it? Read on to find out.
ROAS
ROAS indicates the relationship between the revenue generated from ads and the costs associated with those ads. It is particularly useful for assessing the performance of specific campaigns.
How to Calculate ROAS?
ROAS = Total Revenue from Ads / Cost of Ads.
How to Interpret ROAS?
If you aim for a minimum ROAS of 5, or 500%, it means that every euro invested must generate at least 5 euros in revenue. In other words, for every euro put in, you should expect a minimum of 5 euros back in revenue.
Now that you know everything about ROAS, what is POAS?
POAS
POAS focuses on margins and/or profit generated from advertisements, while ROAS revolves around revenue. This metric looks specifically at actual margins and net profit, making it particularly relevant for advertisers who care about more than just revenue—they want to know their net profit as well.
POAS takes into account both revenue and costs, providing a more holistic view of advertising performance. It’s essential to consider all expenses, including production costs and overhead, when calculating net profit.
How to Calculate POAS?
POAS = Conversion value – Cost of Goods Sold(COGS) & / Ad costs
How to Interpret POAS?
If you aim for a minimum POAS of 3, or 300%, it means that every euro invested must generate at least 3 euros in net profit. In other words, for every euro put in, you should expect a minimum of 3 euros back in net profit.
When to Use ROAS or POAS?
The choice between using ROAS and POAS largely depends on your business goals and the specific insights you want to gain from your advertising campaigns. Here’s a breakdown of when to use each metric:
Martijn Zoetebier
Managing Director Conversive & Group Director Business Development
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