ROAS looks great. Profit isn't growing. Why?
It's the most common scenario we see: an online store with ROAS of 5, 6, even 8 — and an owner who can't understand why there's no money left at the end of the month. The campaign looks good on paper. But the paper lies.
The problem isn't the campaign. It's the metric you're tracking.
ROAS measures how much revenue you generate per unit of ad spend. It doesn't measure how much your business actually earns.
What is ROAS and why isn't it enough?
ROAS (Return on Ad Spend) is calculated simply:
Sounds good. But ROAS doesn't know:
- What gross margin each sold product has
- What order processing, returns and shipping cost
- How much of the attributed revenue is actually net revenue
- Whether you're selling products with 10% or 60% margin
A ROAS of 5x can be excellent for a product with 50% margin. That same ROAS of 5x is a disaster for a product with 15% margin.
What is POAS and how do you calculate it for your store?
POAS (Profit on Ad Spend) puts real profit into the equation, not gross revenue:
Gross profit = Revenue — Cost of goods (COGS) — Variable costs (shipping, processing, returns)
What happens concretely when you look at the same account through ROAS vs POAS?
The ROAS perspective
- Ad spend: €800
- Revenue generated: €4,800
- ROAS: 6x — excellent
- Conclusion: successful campaign
The POAS perspective
- Ad spend: €800
- Gross profit generated: €720
- POAS: 0.9x — below breakeven
- Conclusion: unprofitable campaign
Same account. Same data. Opposite conclusion. The difference: promoted products had 15% margin, and the breakeven ROAS should have been at least 6.7x, not 6x.
How to calculate your breakeven ROAS
1Calculate gross margin
Gross margin (%) = (Revenue — COGS — Variable costs) / Revenue × 100
2Calculate minimum ROAS
Breakeven ROAS = 1 / Gross margin (as decimal)
Ex: 25% margin → minimum ROAS = 1 / 0.25 = 4x
3Set a real target
Target ROAS = Breakeven ROAS × 1.2–1.5 (for net profit after overhead)
Ex: minimum ROAS 4x → target 5–6x
How do you implement POAS in your campaigns?
Calculate margin per product or category
You don't need perfect precision. Group into 3 buckets: low margin (<20%), medium (20–40%), high (>40%).
Set different target ROAS per product group
Low-margin products need a higher target ROAS. Don't treat the entire catalog the same way.
Exclude unprofitable products from campaigns
A product with 8% margin shouldn't be in Google Shopping unless you can achieve ROAS >12x. Better not to promote it at all.
Track POAS monthly, not ROAS
Add one column to your monthly report: gross profit generated by advertising vs. ad cost. If it's below 1, the campaign costs more than it brings in.
A ROAS of 4x is excellent at 35% margin. It's a loss at 20% margin. Context matters more than the number.
Why Switching to POAS Is Harder to Implement Than to Understand
The formula is simple. The problem is that not all stores know their real margin per product or category. Some have COGS calculated incorrectly, others include fixed costs in the margin and end up with distorted figures. Before you can set different target ROAS on margin-organized campaigns, you need clean data from accounting or ERP, not estimates.
And even with the data, implementation in Google Ads requires a campaign structure organized by margin category, with different target ROAS per group. That's not a 10-minute setting. It's a restructuring that affects how the algorithm optimizes. If you're just starting with paid advertising, read the realistic 90-day process for launching profitable campaigns first. If you're already managing multiple channels, the omnichannel strategy for online stores shows how POAS applies across the full Google + Meta + Email mix.
At DAFE Digital we optimise campaigns on POAS, not ROAS. Real profit matters more than ad-generated revenue.
ROAS ignores margin — and campaigns optimised exclusively on ROAS can erode profit without appearing to have a problem. We optimise on the metric that matters for your business profitability, not the easiest one to report.
Adela Mincea
Marketing Economist · Fondatoare DAFE Digital · Formator ANC
Adela is a Marketing Economist with over 10 years of paid media experience across Europe, the US and Asia. She founded DAFE Digital for one reason: serious Romanian businesses deserve the same paid media expertise companies get in any other market. That's what DAFE Digital does.
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