If you asked most marketers or business owners about the most important metric for measuring marketing success, you'd likely hear responses like ROAS, cost per sale, average order value, or lifetime value.
But after working with over 500 businesses, I've discovered that the most crucial metric isn't what most "gurus" or agencies promote. This overlooked metric is what truly determines if your marketing is generating actual profit you can reinvest in your business.
Why ROAS Is Not Enough
Let's start with what most marketers focus on: ROAS (Return on Ad Spend).
ROAS is calculated simply:
Revenue ÷ Ad Spend = ROAS
For example, if you spend R20,000 on Facebook ads and generate R100,000 in revenue, your ROAS is 5X. Most agencies would celebrate this result, and on the surface, it looks impressive.
But there's a fundamental problem with ROAS: it only measures revenue against marketing spend without accounting for all the costs in between.
The Missing Pieces in the ROAS Equation
ROAS completely ignores:
- Cost of goods sold (COGS)
- Operating expenses
- Staff costs
- Fulfillment expenses
- Software costs
This creates a dangerous blind spot. You might be generating impressive revenue numbers while actually losing money on every sale.
The Industry Benchmark Myth
Another issue with ROAS is that "target" benchmarks vary wildly across industries. I've witnessed agencies boast about achieving 20X ROAS for clients in one industry, setting unrealistic expectations for clients in completely different markets.
Consider these examples:
Meal Prep Business vs. Sports Nutrition
A meal prep service might easily achieve 10-20X ROAS because:
- Everyone needs to eat (basic necessity)
- Low barrier to first purchase
- Frequent repeat purchases
Meanwhile, a sports nutrition company might struggle to exceed 3-4X ROAS because:
- Products are discretionary, not essential
- Higher price points create purchase hesitation
- More competitors offering similar products
- Requires more trust building before purchase
When agencies use blanket statements like "we achieve 10X ROAS for our clients," they're ignoring these critical differences.
🚨 REALITY CHECK 🚨
No matter what ROAS your marketing achieves, if your bank account is shrinking, something is wrong. Marketing isn't just about generating revenue—it's about generating profit.
This disconnect between impressive metrics and disappointing financial outcomes is why businesses need to focus on a different, more comprehensive metric.
Introducing POAS: The Metric That Actually Matters
The most important marketing metric isn't ROAS—it's POAS: Profit on Ad Spend.
POAS measures how much actual profit you generate from your marketing investment after accounting for all costs. This is the true measure of marketing success because it tells you how much money you can actually put back in your pocket or reinvest in your business.
How to Calculate POAS
The formula for POAS is:
Net Profit ÷ Ad Spend = POAS
Let's break down an example:
- Ad Spend: R20,000
- Revenue Generated: R100,000 (5X ROAS)
- Cost of Goods: R30,000
- Operating Expenses: R60,000
- Net Profit: R10,000
POAS = R10,000 ÷ R20,000 = 0.5X
A 0.5X POAS means for every rand you spend on marketing, you're generating 50 cents in actual profit. That's money you can reinvest or take home—the true measure of marketing success.
Why Businesses and Agencies Avoid POAS
If POAS is so valuable, why isn't everyone using it? There are several reasons:
1. Lack of Financial Transparency
Many business owners don't want to share their complete financial picture with agencies. Without this data, agencies can't calculate POAS accurately.
2. Uncomfortable Truths
POAS forces businesses to confront uncomfortable realities about their operations:
- Are your margins too low?
- Are your operating expenses bloated?
- Are you taking too much salary relative to what the business can support?
3. Ego Protection
Both agencies and businesses sometimes prefer to focus on vanity metrics rather than facing hard truths about business fundamentals.
Making POAS Work for Your Business
To leverage POAS effectively as your north star metric:
Know Your Numbers
The foundation of POAS is understanding your business finances:
- Healthy gross profit margins (aim for 50%+ for bootstrapped online businesses)
- Clear breakdown of operating expenses
- Realistic profit targets (minimum 10% net profit)
Build Transparent Agency Relationships
Share your numbers with your marketing partners. If privacy is a concern, use NDAs, but don't keep your marketers in the dark about what success really means for your business.
This is like going to a doctor saying "I'm sick" without specifying symptoms. How can they prescribe an effective treatment? Similarly, how can an agency optimize for profit if they don't know your cost structure?
Set Realistic Expectations
Understand that a seemingly modest POAS (like 0.5X) might actually be excellent if it means you're generating substantial profit you can reinvest in growth.
Remember: The point isn't to have impressive-sounding metrics—it's to build a business that consistently generates profit you can use to fund further growth or support your lifestyle.
The Bottom Line
Too many businesses focus on revenue while ignoring profit. They celebrate high ROAS while their bank accounts dwindle. By shifting focus to POAS, you align your marketing efforts with what actually matters: generating profit you can reinvest to create a self-funding growth engine.
This isn't just about metrics—it's about building a sustainable business that creates real value for you as the owner. After all, isn't that why you started your business in the first place?
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