While ROAS for e-commerce is definitely a better metric for reporting than cost per receipt (CPA), it does not take into account all production costs. In that sense, the leap from ROAS to POAS is like a scale from CPA to ROAS. You’re just adding more granularity, and granularity comes with control.
POAS vs. ROAS
The similarity of terms and formulas will not let you down the fact that POAS and ROAS are very different models.
ROAS does not consider profit margins on every sale, whereas POAS does. It has many implications. If your profits on different products vary significantly, or if your profit margins change over time, then you should almost certainly use POAS. To know more about profit bidding, consult a professional.
How POAS Improves Your Performance Marketing
POAS digs further into the numbers but still provides a useful overview of the campaign’s success. Aima’s philosophy is that when you set the right goals, you win the big battle for lasting success. Especially for e-commerce brands, this leads to:
1- Accurate, data-driven reporting
2- Transparency for all stakeholders
3- Strong customization on the product surface
4- Rapid adjustment for change
When does POAS become a threshold?
No marketing theory can be complete without checking the boundaries. POAS may be less useful depending on your goals. If you recognize that gaining new customers leads to long-term success, then improving POAs will not do you any good. Similarly with awareness marketing. POAS is about direct, better performance in terms of revenue. PoAS is also less useful for e-commerce brands with small margins in profit margins. If you have only one product or you know that there is always a 20% margin on all your products, you can easily make more profit. POAS is all about margin management.
How to calculate POAS profit?
Well, for that you need some data. Take turnover (deductible discounts, gift cards, free shipping limits) and reduce product costs, shipping fees, payment fees and other costs. The result is your gross profit from each order.
What is the difference between ROAS and POAS calculation?
ROAS has a highly variable interval based on average margin and is not transparent, whereas POAS interval-one is always 1 and transparent
Companies will estimate/calculate which ROAS interval may be 5, 7 or maybe 9 for them. But this will only average for the campaign/product category.
POAS is essential for e-commerce brands, whether you are operating in the luxury market or selling low-cost products on a large scale. It provides better reporting on both granular and topline levels. It allows you to maximize and maximize profits. This is a model that we are building for most of our customers as long as it is in line with their business goals. Specifically, PoAS is suitable for brands with small margins and large product volumes, where your main goal is to move from a wide range to profitability. We’ve set up automated trackers that show cost and profit per product, allowing us to maximize profits and spend at a more detailed level. Also, it is worth it if your profit margin is very different. If you have a category that is cheap to make but highly desirable, then at the product level you want it to weigh more than the one that has very little benefit.