Ad tracking: why marketers should focus on profit rather than sales
Smart bidding makes their work a lot easier for marketers. With the help of machine learning and the use of intelligent algorithms, campaigns can now be easily optimized in real time. The standard used in the industry to date for performance tracking is ROAS (“Return on Ad Spend”). Tom Maier from Channable explains in this guest post why POAS (“Profit on Ad Spend”) could be the new main metric in ad bidding.
With the help of machine learning and the use of intelligent algorithms, campaigns can now be easily optimized in real time. However, the optimization process is extremely complex and difficult to understand. For this reason, experts recommend using a limited number of key metrics in order to maintain a better overview of the processes of automated real-time optimization.
The standard used in the industry to date for performance tracking is ROAS (“Return on Ad Spend”). There is one simple reason, however, that marketers should consider POAS (“Profit on Ad Spend”) as a metric when bidding: profit margin data.
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Online advertising campaigns can now be optimized in real time – what is important is a realistic picture of profit margins.
Any costs incurred have so far not been taken into account
ROAS uses sales as the basis for calculation, and for this very reason it is only suitable to a limited extent for evaluating advertisements, because it says nothing about the costs incurred.
If they are based only on sales figures, it is not clear to marketers how much money is actually being earned back with advertising expenditure. It is precisely these costs that are one of the most important factors for a company.
By contrast, when calculating the POAS, the gross profit is divided by the directly comparable advertising expenditure. It can therefore be determined whether a sale generated a profit – and that in real time. Every transaction generated by online marketing is tracked. This provides an overview of the products that are bought most often and that deliver the highest profit.
More realistic overview
If marketers focus on tracking profit instead of sales, profit margin data offers a more realistic overview of the return on a product and can thus realistically reflect the campaign goals.
With this deeper insight, you can invest in the right campaigns and avoid ending successful campaigns. Thanks to Google Ads, the use of the POAS metric is already possible, but it is still used too seldom in practice because POAS still raises concerns among many marketers.
The problem with data protection
The topic of data protection is increasingly causing discussions, including among marketers. They are reluctant to share their direct profits with third-party providers such as Google or other platforms. Understandable, because it involves sensitive company data.
The use of POAS in compliance with data protection regulations is definitely possible. To do this, marketers have to resort to independent platforms that work with margin data without passing it on to third parties. Such tools make it possible to import, work with and implement sensitive data. They can then be exported to the advertising and sales channels.
Profit Tracking: The New Standard?
If companies focus on profit (POAS) instead of sales (ROAS), it ensures that the more reliable data provides the basis for online advertising. POAS tracking is quite suitable to replace the ROAS key figure and to give a realistic overview of the return on advertised products.
Which key figure is most suitable for a company, of course, always depends on its individual goals. It is not possible to give a general recommendation. However, if a company decides to use POAS, platforms now offer tools with which sensitive data can be centrally managed and controlled and ensure that it is used in accordance with data protection regulations.
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