The Metric That Matters
Profit on Ad Spend
ROAS measures revenue. Profit on ad spend measures what you actually keep. For ecommerce brands spending £10k+ monthly, understanding this difference determines whether scaling creates wealth or just movement.
Note: POAS is a registered trademark of ProfitMetrics.
The Formula
The Commercial Reality
Why ROAS Alone Is Dangerous
Side by Side
ROAS vs Profit on Ad Spend
Same £1,000 ad spend. Completely different commercial outcomes.
| Campaign | Revenue | ROAS | Margin | Gross Profit | POAS | Net After Ads |
|---|---|---|---|---|---|---|
| Low-Margin Hero | £8,000 | 8:1 | 15% | £1,200 | 1.2:1 | £200 |
| Mid-Margin Core | £4,000 | 4:1 | 50% | £2,000 | 2:1 | £1,000 |
| High-Margin Niche | £3,000 | 3:1 | 70% | £2,100 | 2.1:1 | £1,100 |
The takeaway: The campaign with the worst ROAS generates 5.5x more profit than the campaign with the best ROAS.
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What Changes When You Optimise for Profit
Stop Over-Bidding on Low-Margin SKUs
ROAS-based bidding treats all revenue equally. Your bestseller at 15% margin gets the same bid logic as your premium line at 60% margin. Profit-based signals fix this.
Scale with Confidence
When you know your true profit on ad spend, increasing budget becomes a clear business decision. You are not chasing revenue that disappears into product costs.
Find Hidden Profit Pools
Products ignored because of low ROAS might be your most profitable when margins are considered. Profit-based analysis reveals these opportunities.
Honest Reporting
No more celebrating 10x ROAS while the business struggles. Profit on ad spend aligns your ad performance metrics with actual financial outcomes.
Implementation
How to Implement Profit-Based Bidding
Map SKU-Level Margins
Calculate accurate COGS for every product including product cost, shipping, packaging, and handling. Export this data from your ecommerce platform.
Create Profit Signals
Use conversion value rules, custom columns, or third-party tools to pass profit rather than revenue into Google Ads.
Set Profit-Based Targets
Replace ROAS targets with profit on ad spend targets. A 2:1 POAS means you keep £2 for every £1 spent on ads.
Maintain Data Accuracy
Costs change. New products launch. Build processes to keep margin data current and accurate.
Watch Out
Common Profit-Based Bidding Mistakes
Using Average Margins
Applying one average margin defeats the purpose. Products with 20% and 60% margins need different bid logic.
Ignoring Return Rates
A product with 40% returns has a very different true profit than the same product with 5% returns.
Stale Cost Data
Supplier costs and shipping rates change. Old margin data leads to wrong optimisation decisions.
Forgetting Overhead
A 2:1 profit on ad spend sounds good until you remember warehousing, staff, and platform fees.
Questions
Frequently Asked Questions
What does POAS stand for?
POAS stands for Profit on Ad Spend. It measures the actual profit generated for every pound spent on advertising, rather than just revenue. POAS is a registered trademark of ProfitMetrics.
How is profit on ad spend calculated?
Profit on ad spend is calculated by dividing gross profit (revenue minus cost of goods sold) by advertising spend. For example, if you generate £500 gross profit from £100 ad spend, your profit on ad spend ratio is 5:1 or 500%.
Why is profit on ad spend better than ROAS?
ROAS only measures revenue, ignoring product costs and margins. A 5x ROAS on a 20% margin product generates less actual profit than a 3x ROAS on a 60% margin product. Profit-based metrics reveal this difference.
What is a good profit on ad spend ratio?
This depends entirely on your business model, overhead costs, and growth objectives. Generally, anything above 1:1 means you're generating profit, but most sustainable ecommerce businesses target 2:1 or higher after accounting for all costs.
How do I optimise Google Ads for profit instead of revenue?
You need to pass margin or profit data into Google Ads through conversion value rules, offline conversion imports, or profit-based bidding signals. This requires integration between your ecommerce platform, accounting data, and ad platform.
Our Services
How We Apply This Thinking
Next Step
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