In the world of e-commerce and digital advertising, Return on Ad Spend (ROAS) has long been the go-to metric for measuring campaign success. But here's a truth bomb: ROAS doesn't tell the full story. In fact, high ROAS in Google Ads can sometimes be unprofitable, while a low ROAS can be wildly profitable in other cases. Mind-blowing, right?

So, what's the solution? Enter POAS - Profit on Ad Spend. It's time to dive into why POAS is the metric you should be focusing on and how it can transform your Google Ads strategy.

The ROAS Illusion and Why It Falls Short

Let's get real for a second. The only way to truly know how profitable your campaigns are is to measure POAS (duh) and gross profit down to the campaign level in Google Ads. But why is that?

Why Profit Tracking is the Better Option in Most Ecommerce Cases

Picture this: You have two products with different price points and profit margins. Product 1 has a higher price but lower profit margin, while Product 2 has a lower price but a higher profit margin.

If you have a calculated break-even ROAS at 350% and you set your campaigns to hit a target ROAS (tROAS) of 400%, your campaign will focus on Product 1 with lower profit margins. Sounds good on paper, right? Higher revenue, higher ROAS. But hold up...

If you decide to bid on POAS and set your tROAS (technically tPOAS in this case) at 100% (remember, anything above 100% POAS is profitable), Product 2 will get prioritized. The result? You'll generate more profit by selling that product.

In essence:

• Product 1 will grow your topline
• Product 2 will grow your bottom line

Now, it's important to note that this is a VERY simplified example, but I think you get the mechanics behind bidding on POAS by now.

Implementing Profit Tracking – The How-To

Alright, so you're convinced that POAS is the way to go. But how do you actually implement it? There are a few tools out there that can help you track profit, but whenever I can, I use profitmetrics.io across all my clients. I'm a huge fanboy of the system and team behind it, so it's a no-brainer for me.

But switching from bidding for ROAS to bidding on POAS isn't just about flipping a switch. There are some guidelines you need to follow to ensure a successful implementation.

The Golden Rule of POAS Implementation

What you need when implementing POAS into Google Ads is to steer Smart Bidding in the right direction while it's re-learning that conversion value is not revenue anymore, but gross profit.

No matter which method I use, I ALWAYS implement profitmetrics and monitor POAS over the next 100 (preferably more) conversions while still bidding on ROAS. This gives me a better idea of where we land in terms of POAS for when I'm going to switch conversion actions.

Two Methods for Switching from ROAS to POAS

Method 1: The 7-14 Day Switch – Control with tROAS (POAS) 

Important note: Use this method when you heavily use tROAS and aim to complete the implementation over 7 days and lowring your target ROAS to the average POAS of the last 14 days

1. Switch conversion actions from revenue to profit (set revenue conversion tags as secondary and profit conversion actions to primary) and do not touch your tROAS settings for the first 24 hours.
2. Monitor CPC - If it begins to decrease, lower tPOAS in small increments (e.g., from 450% to 400%).
3. Continue this until you hit your desired tPOAS. If CPC suddenly increases, halve your budgets to avoid overspending.

Remember, do this as quickly as possible, preferably over 7 - 14 days (depending on the spend level) 

Method 2: The Simple Switch – Control with daily spend

Important note: This can be used if your campaigns already run on non-restricted bidding models such as "maximize conversions" or "maximize conversion value".

This method is really simple:

1. Update your daily spend to the last 14 days average spend level 
2. Remove all tROAS and let campaigns run for 14 days 
3. Switch conversion actions (set revenue conversion tags as secondary and profit conversion actions to primary).
4. Monitor CPC and if you see any significant increases, halve the budget as a precaution.

If your account has campaigns running with max. conversions/conv. value, but also has a few campaigns running with tROAS (e.g., standard shopping campaigns), you'll need to use a bit of both methods for the standard shopping campaigns to successfully re-learn that it's profit instead of revenue flowing through them now.

The POAS Revolution: Your Next Steps

By now, I hope this POAS crash course has given you the tools and a better understanding of how important it is to enrich your Google Ads setup with real-time gross profit, enabling you to steer your campaigns based on POAS.

Remember, in the world of e-commerce and digital advertising, it's not just about driving revenue - it's about maximizing profit. And POAS bidding is your ticket to achieving just that.

So, are you ready to make the switch from ROAS to POAS and take your Google Ads performance to the next level? Your bottom line will thank you!

Frequently Asked Questions About POAS Bidding

To wrap things up, let's address some common questions about POAS bidding:

Q: Is POAS bidding suitable for all types of e-commerce businesses?
A: While POAS bidding can benefit most e-commerce businesses, it's particularly valuable for those with varied product ranges and different profit margins. If all your products have identical profit margins, the benefit might be less pronounced, but you'll still get a more accurate picture of your ad performance.

Q: How long does it typically take to see results after switching to POAS bidding?
A: The timeline can vary, but generally, you should start seeing more accurate performance data immediately. However, it may take 2-4 weeks for Google's algorithms to fully adapt to the new bidding strategy and for you to see optimized results. Remember, the key is to monitor closely and make incremental adjustments during this period.

Q: Will switching to POAS bidding automatically increase my profits?
A: POAS bidding provides a more accurate way to measure and optimize for profit, but it's not a magic wand. Your overall profitability still depends on factors like product quality, market demand, and your overall business strategy. POAS bidding gives you the tools to make more informed decisions, but you still need to use those tools effectively.

Q: Do I need special tools to implement POAS bidding?
A: While it's possible to calculate and implement POAS manually, using specialized tools like profitmetrics.io can greatly simplify the process and provide more accurate, real-time data. These tools can automate much of the process, making it easier to track and optimize for profit across your campaigns.

Q: What if I see a significant drop in revenue after switching to POAS bidding?
A: It's not uncommon to see some fluctuations in revenue when you first switch to POAS bidding. Remember, you're now optimizing for profit, not revenue. If you see a drop in revenue but your profit is stable or increasing, that's actually a good sign – you're selling fewer unprofitable or low-profit items. However, if both revenue and profit are declining, you may need to adjust your strategy or check your implementation.

Q: Can I use POAS bidding for other advertising platforms besides Google Ads?
A: While this article focuses on Google Ads, the concept of POAS can be applied to other advertising platforms as well. However, the specific implementation methods may vary depending on the platform's capabilities and available tools. Always check the specific features and limitations of each platform when trying to implement POAS bidding.

Remember, switching to POAS bidding is a significant change in how you approach your advertising strategy. It's normal to have questions and concerns. If you're unsure about anything, don't hesitate to consult with a digital advertising professional or reach out to the support team of your chosen POAS tracking tool.

By focusing on profit rather than just revenue or ROAS, you're taking a big step towards more effective, profitable advertising. Here's to your success with POAS bidding!

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