POAS Course Part #3: ROAS vs POAS – Why POAS Gives You a More Accurate View Than ROAS
To understand the power of Profit on Ad Spend (POAS), it helps to compare it directly with ROAS using a simple example. This breakdown makes it clear why two products with the same ROAS can have very different levels of actual profit.
Same ROAS, Completely Different Profit
In this example, we look at two products:
- A hoodie
- A pair of trainers
Both products:
- Sell for $100
- Spend $20 on ads
- Show a ROAS of 5 (100 ÷ 20)
If you only look at ROAS, you’d assume both products perform equally well. But revenue doesn’t tell the full story.
Where POAS Reveals the Truth
When we calculate POAS, we factor in real costs, not just revenue and ad spend. This includes:
- Cost of goods sold (COGS)
- Shipping fees
- Payment fees
- Pick and pack fees
- Other variable fulfillment costs
In this example, for simplicity, both products share a flat $10 in additional fees.
The key difference is the cost of goods sold:
- Hoodie COGS: $40
- Trainers COGS: $70
Profit Comparison: Hoodie vs Trainers
Once we subtract COGS and fees, the true profit becomes clear:
Hoodie
- Sale price: $100
- COGS: -$40
- Fees: -$10
- Profit: $50
Trainers
- Sale price: $100
- COGS: -$70
- Fees: -$10
- Profit: $20
Both products earned the same revenue and used the same ad spend, but the profit is dramatically different.
POAS Makes the Difference Impossible to Ignore
Now let’s apply the POAS formula:
POAS = Profit ÷ Ad Spend
Hoodie
- $50 profit ÷ $20 ad spend
- POAS: 2.5
Trainers
- $20 profit ÷ $20 ad spend
- POAS: 1.0
Despite identical ROAS numbers, the hoodie is 2.5x more profitable than the trainers.
POAS exposes the true return on investment, clearly showing which products actually add to your bottom line.
