POAS: What it is and how it differs from ROAS

Understanding and managing key metrics can make the difference between the success and failure of an advertising campaign. Two of these metrics, POAS (Profit on Ad Spend) and ROAS (Return on Ad Spend), are essential for measuring the performance of advertising investments.

Although both focus on evaluating campaign returns, they have crucial differences that make them unique in their application.

What is ROAS and what is it used for?

ROAS, or Return on Ad Spend , is a metric used to measure the effectiveness of advertising campaigns by calculating the return generated for each dollar invested. The ROAS formula is quite simple:

ROAS = (Revenue generated by the campaign / Cost of the campaign)

For example, if you spend $1,000 on an advertising campaign and generate $5,000 in sales, your ROAS would be 5, meaning that for every peso invested, you are recovering five pesos.

This metric is particularly useful for optimizing your advertising budget, as it allows you to identify which campaigns are performing well and which ones need adjustments.

However, it is important to remember that a high ROAS does not always imply a net profit, as it does not consider additional costs associated with the sale, such as production costs or profit margins.

What is POAS and why is it important?

POAS, or Profit on Ad Spend , is a more advanced metric that focuses on measuring the actual profitability of an advertising campaign.

Unlike ROAS, which simply measures revenue generated, POAS takes into account profits earned after deducting all costs associated with the sale, such as production, distribution, and other operating expenses.

The formula to calculate the POAS is:

POAS = (Net benefits generated by the campaign / Cost of the campaign)

This approach offers a more accurate view of the financial impact of a campaign, allowing businesses to make more informed decisions about where and how to invest their advertising budget. A positive POAS indicates that the campaign is not only recouping its investment, but is also generating net profits.

Key differences between POAS and ROAS

Although POAS and ROAS seem similar at first glance, their differences are essential to an effective advertising strategy:

• Approach: ROAS focuses on gross revenue generated from advertising, while POAS considers net profits after deducting all associated costs.
• Application: ROAS is useful for evaluating the effectiveness of short-term campaigns, while POAS offers a more complete view of the actual financial impact, ideal for long-term strategies.
• Accuracy: POAS provides a more accurate metric in terms of profitability as it considers all costs, while ROAS only measures return based on revenue generated.

How to decide which metric to use?

Choosing between POAS and ROAS depends on the specific goals of your campaign and your business. If your primary goal is to maximize short-term revenue and optimize your advertising budget, ROAS is the more appropriate metric.

If you are looking for a more detailed assessment of profitability and want to make long-term strategic decisions, the POAS will be more useful.

Both metrics are complementary and can be used together to get a more complete picture of the performance of your advertising campaigns.

Written by Moises Hamui Abadi : I am an entrepreneur, founding partner of Viceversa and SoyMacho. After leading several digital businesses and advising several other businesses, I decided to form MHA Consulting, a digital marketing consultancy dedicated to growing and empowering digital businesses in more than 7 countries and generating more than 1,500 million pesos.