What are you talking about? Isn’t ROAS and POAS the most important number for my e-commerce company? So, how come Google and my agency use it as their key performance metric?
ROAS, or Return On Ad Spend, is a terrific statistic in principle. You’ve made money on the campaign if the Return is more than the ad cost. However, in e-commerce analytics, the Return (profit) is not readily available, making it accessible to Google, Facebook, and other marketing channels. So, somewhere along the way, they chose to forego Return in favor of the more readily available but opaque Revenue. So, most of the time, ROAS stands for Revenue on Ad Spend, which is not the same as Return On Ad Spend.
Margins, fixed costs, payment fees, and shipping costs are some of the most important aspects of running a profitable e-commerce firm, but revenue tells you nothing about them. Before we go any further, let’s clarify something: for a long time, ROAS was deemed best practice simply because it was the best measure accessible to most e-commerce enterprises. However, as you’ll see below, ROAS based on revenue has some drawbacks that could stymie your profits and performance.
The aim for average ROAS is:
Working with an average of your product margins or an average profit ratio based on order history – typically one year of order data – is the first strategy. This is essentially a “win some, lose some” strategy, in which you accept that not all orders will be profitable as long as the total result is positive.
The following are some of the drawbacks of this strategy:
- On some orders, there was an unavoidable loss of funds.
- A significant risk of terminating ads for profitable products and orders with modest selling prices but big profit margins.
- As the product catalog and order mix change over time, it is necessary to continually assess the ROAS target.
What exactly is POAS?
Profit on Ad Spend (POAS) is an acronym for profit on ad spend. ROAS stands for Return on Ad Spend (revenue).
The acronym POAS stands for Profit on Ad Spend. It’s an alternate shorthand for the original ROAS, which was supposed to be Return on Ad Spend but became Revenue on Ad Spend, as described.
You divide the gross profit attributable to the online marketing channel by the ad cost to get the POAS of your online advertising. These figures are directly similar, therefore a POAS greater than one indicates that you have made money.
Why is POAS a better criterion?
Let’s use an example to make this clear. We’ll show you how the results of the same four orders appear completely different when ROAS is used instead of POAS. We create software that makes it simple to understand business performance and take the steps necessary to enhance it. You must have the data where you optimize to reap the benefits of profit data and POAS. In other words, profit data is required in marketing channels such as Google Ads.
With our Plug’n’Play connections, you may benefit from Facebook Ads as well as Google Ads. According to the attribution of the specific marketing platform, the data is ascribed to various campaigns, advertising, keywords, and so on.