Turn unrewardable advertising to profitable growth on Meta

ROAS has long been the gold standard for measuring advertising results. High ROAS has been synonymous with success.

But what does it help to bring in 100 000 kroner on the market - if it costs you 95 000 kroner to get it to? You're left with a little bit of a bit, or at worst, loss.

It is time to ask a more precise question: Do we actually earn money on our campaigns?

Many advertisers think they're doing well – until they start looking at margins, costs and actual performance. When you first open up the numbers, it often becomes clear that ROAS doesn't tell the whole story. For some, it hides a reality where you spend a lot of money — without earning anything special back.

In this article we will show you how POAS (Profit on Ad Hand) can serve as a better goal to manage – and how we by switching from ROAS to POAS turned an unprofitable campaign to one who earned NOK 20,000 in profit within a month.

What is the difference between ROAS and POAS?

When you assess the results of paid advertising, you can measure the yield in two ways: ROAS (Return on Ad Hand) and POAS (Profit on Ad Hand).

Both show you what you get per ad crown, but with one important difference: ROAS shows income – POAS shows profitSo let's say that this is the same thing as that.

What is ROAS?

ROAS = Income / Advertising costs Tell you how much you translate per ad crown.

Benefits:

• Simple to understand and quickly calculate
• Default measurement in most ad tools
• Useful for comparing income across campaigns or over time
• Easy to communicate

Accidents:

• Does not take into account costs such as cost of purchase, freight, discount and operation
• Does not indicate whether the campaign is actually profitable
• Breakeven calculations are not suitable for giving a proper picture of profitability.

Here you can read more about why to set the breakeven ROAS cross-product range not working optimally

What is POAS?

POAS = Gross profit / Advertising costs Tell you how much you actually earn per cent of your salary, after the costs such as shipping, transaction fees, discounts and the cost of the purchase have been deducted.

Benefits:

• Shows profitability, not only turnover
• Taking into account margins, discounts, freight and other variable costs
• Clears the need for manual breakeven calculations.
• Combines profit and income assessment in one KPI

Accidents:

• Require data integration with e.g. product feed, backend or third party tool
• Needs conversion in how to read the numbers, especially if you've been working with ROAS for a long time.

ROAS may be a business trap

Now we're going to rewind to the worried market manager.

The market manager sees the numbers in the picture below, and thinks this is pretty good. Both campaigns deliver well, but the market manager wants to scale based on ROAS.

You think that choice is simple for the market manager.

The market manager naturally chooses campaign A because the results on the surface look better. The problem is, the numbers don't tell the whole truth.

The Hidden Cost

The market manager makes digging a little bit more below the surface, and sees these figures:

• Promotion A, which looked best, loses money.
• Promotion BWith lower ROAS and income, a significantly higher profitability in advertising is achieved.

The market manager is therefore concerned. The person does not know if this has been the case at all historical campaigns, and is therefore even more concerned if they have blew a lot of the year's budgets wrong.

ROAS alone can therefore trick you into prioritizing errors. So you need a model that gives you security when scaling.

That's where POAS comes in.

Therefore, you should consider POAS

PIAS is particularly useful in these situations:

You want to know what actually pays off

ROAS says something about turnover – but not what you're left with. With POAS, you see if the campaign actually makes money.

You work with products with different margins

Do you have different margins on the product range? It's hard to make accurate breakage operations because of many variations. POAS makes this simple.

You run a good mix of discounts and full price

When discounts (and shipping) eat from the margin, ROAS is quickly misleading. The POAS takes this into account and gives you more reliable assessments.

You're going to scale

When you increase the budget, it is important to know which campaigns are actually profitable. High ROAS does not necessarily mean that it pays to spend more money. POAS gives you better control.

You want a better decision-making basis

It's boring to go into meetings and present campaigns that have given you good income and ROAS, which you almost don't make money on. POAS would give the insight to sit again with more.

Get more money back in the money: Proficient control in Meta Ads with POAS

Most meta announcers use the default conversion optimization scheme. That means they:

• Optimizes for “Purchase” as an event.
• Selects the strategy “Maximize number of versions” or “Maximize value”

In other words: You ask Meta to obtain the most purchase – or the highest possible turnover. This is standard practice – and it works well for many

But...

Meta knows nothing about the profitability of each sale.

If you allow Meta to maximize the number of sales or maximum value, the algorithm will prioritise:

• High price products, regardless of margin
• Customers with a high average order value, regardless of return costs
• Discounted campaigns that look “good” in the numbers, but that eat the bottom line

When you have integrated profit data in Meta (e.g. through third party tools such as: ProfitMetrics or other custom solution), you can change the target of the campaign:

Instead of optimising for ”Purchase“ You Can Optimize for ”Gross Profie“

This gives the algorithm a completely new compass. This makes the algorithm a priority:

• Products generating both the highest possible income and profit
• Customers who generate the highest profit while maintaining the highest possible order value.

This grip turned the advertising from minus to NOK 20 000 in profit

We conducted an A/B test comparing two identical campaigns. All ads were the same, but the difference was:

• Promotion A optimised after profit (POAS)
• Promotion B optimised by income (ROAS)

The test looked like this:

Result: The campaign that optimized for profit earned more money and was left with more profit.

This means that profit-timulation can not only be better for profitability — it can also deliver higher turnover.

The myth that POAS is not suitable for maximizing income is therefore broken.

By switching from Intent optimisation Could not create folder "%s": %s profit you get:

• Better Budallocation
• Smarter target group selection (Meta teaches which purchases provide best margin)
• Session ROAS and POAS
• More data when reporting results to management

Short summary

ROAS shows income, not profit. It gives a distorted picture of what actually pays off.

The POAS gives you control of the margins, and shows you which campaigns actually make money.

Profitoptimization enables you to scale with profitability, not just volume.

Our test showed that POAS gave both higher income and higher profit – the myth that profit measurement goes beyond the top line is broken.

You can easily get started, either via third party tool or customization in feed and event tracking.

Ready to maximise profit?

Do you think profit tracking and optimization is something for you and your online store? Then it's little to wait for! The sooner you get started, the greater the competitive advantage will be in today's advertising market. We'll help you get started.