What does POAS mean?
POAS, or "Profit on Advertising Spend," is a measure that helps you understand how much profit you make for every euro you spend on ads. This concept is similar to ROAS, or "Return on Advertising Spend," where you look at the revenue you generate per euro of ad spending. The big difference between POAS and ROAS is that ROAS looks only at the revenue you generated, while POAS looks specifically at profit. In other words, POAS goes a step further by measuring not only how much money is coming in, but also how much of that is actually profit, after expenses.
In order to calculate POAS accurately, it is important to know well in advance what the profit margins are on the products you sell. Your profit margin is the difference between what you pay for a product and what you charge for it. By calculating this in advance, you can determine exactly how much profit you made after spending advertising money and how that compares to your advertising budget. For example, if you know you have a 20% profit margin on a product and you sell it thanks to your ads, you can divide that profit by what you spent on ads to calculate your POAS.
Calculating POAS is essential for companies looking to optimize their marketing spend. By mapping your profit margins upfront and then dividing your profit by your ad budget, you get a clear picture of which campaigns are actually contributing to your bottom line. This allows you to make strategic decisions, such as increasing your budget for campaigns that show high POAS, or conversely reducing spending on campaigns that are not profitable. POAS gives you tools to not only make more sales, but also to make sure those sales lead to healthy profits.
