POAS Explained & Why You Need It

As time goes by, people start using new and more profitable bidding strategies. And while many people know about ROAS (return on ad spend) bidding, they don’t know about a better bidding strategy named POAS (Profit on ad spend).

So what is it, and why do you need to add it to your next ad campaign. Continue reading to find out.

What is POAS?

First, let’s explain what POAS precisely is! Simply put, it’s a bidding strategy that considers how much profit you’ll make per dollar spent on ads. But now you might be thinking about how it’s different from ROAS? Well, let me explain with an example.

Let’s say you created a Google ad where you spent $100. And according to Google, you made $500 from it. So the ROAS of your ad is 500%.

Here’s how the math works: ($500/$100)x100=500%.

So the ad seems to be profitable, right?

Well, for this, we’re going to need to calculate POAS. For this, we first need to get two essential pieces of information about our campaign:

How many orders did we get?
And how much does it costs us to fulfill the order? That includes both product cost and shipping.

So let’s say we got 20 orders and for each order, it costs fulfill $10. That means our POAS is:

[$500-($10×20)-$100]/$100*100=200%

So as you can see from this calculation, we only double the profit. So that’s the difference between those two.

Why Should You Use It in 2022

Now that you know the differences between the bidding strategies, you might ask why you should use POAS in your next campaign.

Well, to put it simply, you understand how much you are making. That’s great as you won’t need to guess if you’re profitable or not, and it saves time.

However, for this to work, you will need third-party software that connects all your marketing data. For this, I recommend using Kuvio!

Conclusion

And that’s POAS. So as you can see, it’s a bidding strategy that helps you get clarity if your ads are actually profitable. So, instead of using ROAS, make sure you try the POAS bidding strategy!