· Germán Muñoz Moreno, Co-founder
ROAS, POAS and MER: which one to use to decide your budget
What is the difference between ROAS, POAS and MER, and which one should I use to set my ad budget?
Three ratios dominate ecommerce budget meetings: ROAS, POAS and MER. They are often presented as competitors, as if a store had to pick one. They are really three different questions, and a store that uses the wrong one for a decision can cut its most profitable channel while feeling rigorous about it. This guide defines each one, works through one example where they disagree, and says which to use for what.
The three definitions
ROAS (return on ad spend) = revenue attributed to a channel or campaign ÷ spend on it.
POAS (profit on ad spend) = gross profit of the sales attributed to ads ÷ ad spend. Gross profit is revenue minus the cost of the products sold, and ideally minus shipping and payment fees.
MER (marketing efficiency ratio) = total revenue ÷ total marketing spend, over the same period, across every channel and without any attribution.
ROAS and POAS depend on attribution, because they need to know which sales belong to which channel. MER does not.
One store, three answers
An illustration with round numbers. In one month a store sells $1,000,000 in total and spends $200,000 on ads: $120,000 on Meta and $80,000 on Google. Meta mostly sells apparel with a 35% gross margin; Google mostly sells electronics with a 25% margin.
| Meta | ||
|---|---|---|
| Spend | $120,000 | $80,000 |
| Revenue the platform reports | $480,000 | $400,000 |
| Reported ROAS | 4.0 | 5.0 |
| Verified revenue (settled orders) | $360,000 | $300,000 |
| Verified ROAS | 3.0 | 3.75 |
| Gross margin | 35% | 25% |
| Gross profit on verified revenue | $126,000 | $75,000 |
| POAS | 1.05 | 0.94 |
Read the table from top to bottom and the answer changes twice. On reported ROAS, Google wins clearly. On verified ROAS it still wins, by less. On POAS, Meta is the channel that pays for itself after product costs and Google does not. The store's MER, $1,000,000 ÷ $200,000, is 5.0, which says total spend is working and nothing about which channel to grow.
ROAS: fast, and blind to margin
ROAS is what every platform optimizes and reports, which makes it indispensable for bidding inside a platform. Its weaknesses are two. It ignores margin, so it rewards selling low-margin products. And the ROAS a platform reports uses the platform's own attribution, so it includes sales other platforms also claim and sales later refunded; we cover the second in refunds and cancellations: the gap no ad platform subtracts.
Use verified ROAS, computed from your store's settled orders, whenever you compare channels with each other.
POAS: the one that tracks profit
POAS answers the question a business actually has: do these ads make money after the products they sell? It requires margin data per product or category, which is more work, and it is the metric that stops a store from scaling a channel that sells at a loss.
A useful shortcut is the break-even ROAS: 1 ÷ gross margin. With a 35% margin it is about 2.86; with 25% it is 4.0. In the example, Google's verified ROAS of 3.75 is below its break-even of 4.0, which is the same finding as its POAS below 1.
Where the platform allows it, send profit or margin-adjusted values as the conversion value, so its bidding learns to favour profitable products instead of expensive ones.
MER: the honest total
MER needs no attribution, so no platform can inflate it by crediting itself, and it includes the sales ads influence without being credited, such as brand search and direct visits. That makes it the best single check on whether total spend is working, and the reason many operators watch it weekly.
Its limit is the mirror image: it cannot tell you which channel produced the result. A rising MER could come from a great month on one channel, a price increase or a seasonal peak.
Which to use for what
- Bidding inside a platform: the platform's ROAS or, better, a profit-based value sent to it.
- Comparing channels and moving budget between them: verified ROAS, and POAS where margins differ between channels.
- Deciding whether to spend more or less in total: MER, read over several weeks.
- Judging growth quality: the cost of acquiring new customers, which we cover in how to calculate the CAC of new customers.
For the full list of metrics and the question each one answers, see 15 attribution metrics and what each one answers. Adray reports every channel on verified, settled orders next to what each platform claims, which is the input both verified ROAS and POAS need.
Common questions
How do you calculate ROAS?
Divide the revenue attributed to a channel or campaign by what you spent on it. A campaign that cost $10,000 and is credited with $40,000 of sales has a ROAS of 4.0. Which revenue you use matters: the platform's claim or your store's verified, settled orders give different answers.
What is POAS?
Profit on ad spend: the gross profit of the sales attributed to ads divided by ad spend. Gross profit is revenue minus the cost of the products sold, and ideally minus shipping and payment fees. A POAS above 1 means the ads paid for themselves after product costs.
What is MER in marketing?
Marketing efficiency ratio: total revenue divided by total marketing spend over the same period, across every channel. Because it involves no attribution, it cannot be inflated by a platform crediting itself, and it cannot tell you which channel produced the result.
What is a good ROAS?
One above your break-even ROAS, which is 1 divided by your gross margin. With a 50% margin the break-even is 2.0; with 25% it is 4.0. A ROAS that looks excellent in one business can lose money in another.
Should I optimize my campaigns for POAS?
Where you can, yes, by sending the platforms profit or margin-adjusted values instead of revenue, so their bidding favours profitable products. At minimum, judge channels on POAS even if the platforms still bid on revenue.