Marketing

POAS

Profit on ad spend: contribution margin per euro advertised.

Updated

Formula small numbers are statement lines

POAS = Contribution margin ÷ ad spend (line 27)
The short answer

POAS, profit on ad spend, is contribution margin divided by advertising spend. Where ROAS asks how much revenue the ads sold, POAS asks how much you actually kept from what they sold, which makes it the ratio that survives a mixed catalogue with very different margins.

It matters most when the catalogue is mixed. Two products with identical revenue can carry very different margins, and a campaign pushing the thin one looks excellent on ROAS while losing money.

Worked through on the example store the calculators use: €15.000 of advertising in a month against €31.541,60 of CM2, what the orders left after goods, parcels and payment fees, is a POAS of 2,10. Every euro of advertising came back as €2,10 of contribution, so after paying for itself it left €1,10 towards everything else.

A POAS above 1 means the advertising paid for itself out of contribution margin. What it needs to be depends on the overhead it also has to cover, which is a number your own statement has and no benchmark does. The same store carries €7.000 of fixed costs a month, so at €15.000 of spend its POAS has to clear (15.000 + 7.000) ÷ 15.000, about 1,47, before the month makes a profit; at 2,10 it does, with €9.541,60 of EBITDA.

Compute it blended, on your own margin data, rather than from a platform's claimed conversions; the POAS calculator does exactly that from your spend, your purchase value and your cost shares, and sets the ROAS a platform reports beside it.

Which margin goes on top is a choice worth stating. nouz uses CM2, the margin before any advertising, so POAS says what the ads earned back before a euro of them is paid for; a version built on gross margin ignores the parcels and the fees and reads higher than the truth. Insights, Marketing draws it month by month against the line at 1,00, beside MER and blended CAC.

Where you see it in nouz

Insights, the Marketing tab.

app.nouz.co/insights
POAS under the profit on ad spend chart, Insights, Marketing tab.
POAS under the profit on ad spend chart, Insights, Marketing tab.

Questions

POAS, answered.

How do you calculate POAS?
Divide contribution margin by ad spend over the same period. In nouz the margin is CM2, net revenue after goods, shipping and payment fees, so €31.541,60 of CM2 on €15.000 of ads is a POAS of 2,10.
What is a good POAS?
Above 1, the ads paid for themselves out of contribution. Above the point where what is left also covers your fixed costs, they made the month profitable. That second threshold is ad spend plus fixed costs, divided by ad spend, so it is your own number rather than a benchmark.
What is the difference between POAS and ROAS?
ROAS divides revenue by spend, so it treats a euro of a thin-margin product like a euro of a rich one. POAS divides what the orders left after their costs, which is why a campaign can look strong on ROAS and still lose money on POAS.

See this on your own store, every morning.

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