POAS vs. ROAS: Why Most Ecommerce Brands Get It Wrong

Why Most Ecommerce Brands Are Misleading Themselves With ROAS (And What to Use Instead)

ROAS is the most abused, misunderstood, and misleading metric in ecommerce marketing. Brands love it because it gives the illusion of efficiency. Agencies love it because it’s easy to manipulate. But your finance team knows the truth: ROAS tells you nothing about whether your campaigns are actually profitable.

Here’s the uncomfortable reality:

You Can Have an 8x ROAS and Still Lose Money

If your product margins are thin and your COGS are rising, ROAS becomes a vanity metric that hides the drain on your cash flow. That’s why the fastest-growing ecommerce brands use POAS (Profit on Ad Spend) instead.

Understanding POAS

POAS = Real Profit ÷ Ad Spend

This simple formula reveals crucial insights:

• Which products actually generate profit

• Which SKUs cannibalise margin

• Why your ad account looks healthy but your P&L doesn’t

• How Performance Max allocates spend across your catalogue

• Where your true scaling opportunities are

  
  

A Quick Example

Consider two products that both show a 6x ROAS. However, one has a 50% margin, while the other has only a 10% margin. Despite the same ROAS, the outcomes are completely different.

The Pitfall of Revenue Efficiency

This is why brands often get stuck at £50k–£150k/month in revenue. They’re scaling based on revenue efficiency — not profit efficiency.

At JudeLuxe, every decision we make in Google Ads is anchored to POAS:

• We segment campaigns by margin tier.

• We build feeds that send profit-signalling attributes.

• We engineer PMax structures around contribution margin.

• We eliminate SKUs that look “good” but destroy profit.

• We report on POAS weekly so decisions mirror commercial reality.

  
  

If your agency optimises only for ROAS, they are optimising for their dashboard — not your bottom line.

The Importance of Profitability

Understanding profitability is essential for sustainable growth. Many brands overlook this aspect, focusing solely on revenue. This can lead to misleading conclusions about the health of their business.

Strategies for Success

To ensure your ecommerce brand thrives, consider implementing the following strategies:

1. Focus on Margins: Regularly review your product margins. Identify which products are truly profitable and which are not.

   
   

2. Utilise POAS: Shift your focus from ROAS to POAS. This will provide a clearer picture of your ad spend efficiency.

   
   

3. Regular Reporting: Establish a routine for reporting on POAS. This keeps you aligned with your financial goals.

   
   

4. Adapt Your Strategy: Be willing to pivot your marketing strategy based on the insights gained from POAS analysis.

   
   

5. Educate Your Team: Ensure that everyone involved in your marketing efforts understands the importance of profit over revenue.

   
   

Conclusion

In conclusion, while ROAS may seem appealing, it can be misleading. Embracing POAS allows ecommerce brands to make informed decisions that lead to true profitability.

Want a profit-first audit of your Google Ads setup? Contact JudeLuxe for your free PPC consultation today!

By focusing on profit rather than just revenue, you can unlock the potential for sustainable growth and success in your ecommerce business.