Understanding ROAS vs. POAS (Profit on Ad Spend)

ROAS (Return on Ad Spend): "I put $1 in, I got $4 back." Great, right? Not if your product costs $2 to make, shipping is $1, and Stripe takes $0.50. You made $0.50 profit.

POAS (Profit on Ad Spend): "I put $1 in, I got $0.50 profit."

The Trap of High ROAS

You can easily get a 10x ROAS by giving a 90% discount. But you will go bankrupt. Agencies love ROAS because it looks good on reports. "We got you a 5.0 ROAS!" (ignoring that you sold low-margin clearance items).

Calculating POAS

POAS = Gross Profit / Ad Spend

If POAS > 1, you are profitable. If POAS < 1, you are losing money.

Shifting the Mindset

Stop optimizing for pure revenue. Optimize for contribution margin. Connect your COGS (Cost of Goods Sold) to your ad dashboard. Tools like creating custom columns in Facebook Ads Manager or using third-party analytics can help visualize this.

At the end of the day, you can't pay rent with ROAS. You pay it with Profit.