How to Increase Ecommerce Profits by 93.78% (Month on Month)

Transitioning Google Ads from ROAS to POAS

Introduction

In the highly competitive landscape of e-commerce, profitability is often driven by a brand's ability to optimize advertising spend effectively. The case study focuses on an emerging retailer operating in the European market and targeting a young, environmentally conscious demographic. Initially, the brand relied heavily on traditional metrics like ROAS (Return on Ad Spend) to gauge performance but recently shifted focus towards POAS (Profit on Ad Spend) for deeper insights into profitability. This strategic pivot aimed at optimizing ad spend, enhancing customer experience, and driving bottom-line growth, resulting in an extraordinary 93.78% increase in month-on-month profits.

Challenge

Initially, the brand faced significant profitability issues despite strong revenue growth. Although campaigns had an impressive ROAS during peak sales seasons, profitability remained low with margins squeezed by hidden costs such as product expenses, shipping fees, and payment processing charges.

Key challenges identified:

• High revenue with limited net profit.

• Escalating advertising spend with declining efficiency.

• Reliance on ROAS rather than profit-focused metrics, obscuring actual profitability.

• Generic customer communications resulting in suboptimal retention rates and low customer lifetime value (CLV).

These challenges emphasized the necessity to pivot from ROAS to POAS and personalized marketing strategies.

Solution

Transitioning from ROAS to POAS

Shifting focus from ROAS, which exclusively tracks revenue against ad spend, to POAS allowed the brand to assess advertising spend relative to net profit margins. POAS revealed the true financial impact of each ad campaign, considering costs such as:

• Cost of goods sold (COGS)

• Shipping fees

• Payment method fees

This metric enabled precise decision-making and enhanced profitability.

Implementation

The implementation was carried out methodically over four main phases:

Phase 1: Analysis and Setup

• Entry of product cost in ERP and change of integration between ERP and CMS to send product cost.

• Collection of costs for each payment method.

• Collection of courier costs for each shipment type.

Phase 2: Profitmetrics

• Integration of Profitmetrics with Shopify.

• Setup of the Profitmetrics platform.

• Integration with Google Ads.

• Profitmetrics tracking.

Phase 3: Google Ads Setup

• Gross Profit as conversion action.

• POAS as custom metric.

Phase 4: Continuous Optimization

• Weekly monitoring of POAS performance with agile adjustments.

• POAS dashboard.

Challenges faced during implementation included initial data integration complexities and the necessity of training the marketing team to shift their mindset from revenue-centric to profit-centric decision-making.

Results

The shift to POAS dramatically impacted the business performance metrics. While the advertising spend significantly increased, the brand effectively increased its profitability by focusing on POAS and implementing personalized marketing strategies.POAS bidding allows Google to focus on products with better margins, and this case study shows how the impact of product cost on revenue decreases when switching to POAS. This outcome validated the strategic decision, showing clearly how targeting customer segments based on profitability can drastically enhance efficiency and profitability.

Conclusion

Transitioning from ROAS to POAS combined with advanced customer personalization significantly boosted profitability, with net profits soaring by 93.78%. This increase in profitability occurs mainly during peak periods of sales and promotions. This case demonstrates the critical importance of profit-centric metrics and personalized marketing in modern e-commerce.

Key Takeaways

• POAS provides deeper insights compared to ROAS, driving more profitable decisions.

• Clear segmentation strategies boost campaign efficiency and reduce waste.

• POAS bidding gives e-commerce a boost mostly in the picking season.

Future Implications

Moving forward, the brand plans to: Further refine customer segmentation with advanced AI tools. Expand personalized content marketing initiatives. Continuously leverage POAS for holistic financial health assessments. Implementing these strategies can sustainably scale profits, driving long-term growth and customer loyalty.