Profit on ad spend (POAS) measures how much gross profit your advertising generates for every pound spent on it. It works like return on ad spend, except that it divides profit rather than revenue by ad cost, so it tells you whether the ads are actually making money.
How POAS works
The formula is POAS = gross profit from ad-driven sales ÷ ad spend. Gross profit here means the selling price excluding VAT, minus the cost of the goods and any other costs that rise with each order, such as payment fees, packaging and the delivery you pay for.
A worked example shows why the difference matters. A UK homeware shop sells a lamp for £120 including VAT, which is £100 without it. The lamp costs £45 to buy in, and delivery and payment fees add £10, leaving £45 of gross profit. The shop spent £20 on ads to win the sale.
| Measure | Calculation | Result |
|---|---|---|
| ROAS on revenue including VAT | £120 ÷ £20 | 6.0 (600%) |
| ROAS on revenue excluding VAT | £100 ÷ £20 | 5.0 (500%) |
| POAS | £45 ÷ £20 | 2.25 |
A POAS of 1 means the ads paid for themselves out of gross profit and nothing more. Above 1, advertising is contributing towards overheads and profit; below 1, each sale costs more to win than it earns.
To bid on POAS in Google Ads, you send profit instead of revenue as the conversion value, usually by working out each basket’s margin on your server or in a server-side tag, then run a value-based strategy such as Target ROAS. The platform still calls the target ROAS, but it is now steering towards profit.
Why it matters
ROAS treats a £100 sale of a product with a 70% margin exactly like a £100 sale of one with a 10% margin. Bidding systems therefore favour whatever sells most easily, which is often discounted or low-margin stock. A retailer can hit its ROAS target every month and still lose money on advertising, and POAS is how that shows up.
VAT widens the gap in the UK. Most shop platforms report revenue including VAT at 20%, so a ROAS taken straight from the platform overstates what you keep before a single cost has been counted.
Common mistakes
- Using one average margin for the whole catalogue, which hides the products that lose money.
- Forgetting returns. A fashion retailer with a high return rate keeps far less profit than first-order figures suggest.
- Passing margin figures through the browser, where anyone can read them in the page source.
- Switching a mature campaign from revenue to profit values overnight. Bidding treats it as a new target, so results can swing while it adjusts.
- Judging POAS without lifetime value. A first order that only breaks even can still be worth winning if customers come back.
How to act on it
Start by calculating POAS in a spreadsheet for the last three months, using product-level costs and ad spend by product or category. That alone often shows which lines to cut back and which to push. The free ROAS calculator on this site helps you work out the break-even point from your margin.
If the numbers justify it, move to profit-based conversion values, keep the revenue action running as secondary for comparison, and change one campaign first. Setting up profit-based bidding for online shops is part of my Google Ads management service.