Short answer: ROAS is your ad revenue divided by your ad spend. POAS divides gross profit rather than revenue by your ad spend, so it shows whether you are really making money. MER divides your total revenue by your total ad budget and corrects for channels that double-count each other's sales.
A ROAS of 4 sounds good. For one store it is a profit machine; for another it means a loss on every order. The difference lies in your margin, your costs and whether you measure revenue including or excluding VAT (21% in the Netherlands). In this article we work through all three metrics with an example.
What is ROAS?
ROAS (return on ad spend) is the revenue an advertising channel generates for every euro you spend on it. Google Ads uses the same calculation for target ROAS bidding strategies.
ROAS = ad revenue ÷ ad spend
If you spend €1,000 on Google Ads and Google reports €4,000 in conversion value, your ROAS is 4. This is also written as 400%.
What is your break-even ROAS?
Your break-even ROAS is the ROAS at which your ads exactly break even. Below it, you lose money on every euro you spend on advertising.
Break-even ROAS = 1 ÷ gross margin
With a gross margin of 40%, your break-even ROAS is 1 ÷ 0.40 = 2.5. With a 25% margin it is already 4. That is why a ROAS without a margin tells you nothing: a ROAS of 4 means profit for the first store and exactly zero for the second.
The VAT trap for Dutch stores
Many Shopify stores send their conversion value to Google Ads and Meta including 21% VAT. Your ROAS then looks better than it is. A reported ROAS of 4 is only 4 ÷ 1.21 = 3.3 excluding VAT. Check in your Google Ads conversion settings or your tracking app which value is being sent. If it includes VAT, you can use a value rule in Google Ads to multiply the conversion value by 0.826. Always calculate your break-even ROAS on revenue excluding VAT.
What is POAS?
POAS (profit on ad spend) replaces revenue with gross profit: revenue minus cost of goods.
POAS = gross profit from ads ÷ ad spend
The big advantage: your break-even POAS is 1 for every store. Above 1 you make money; below it you lose money. You no longer need to remember which ROAS each product or channel has to hit. Google Ads can report gross profit itself via conversions with cart data, taking the cost price per product from your Merchant Center feed.
What is MER?
MER (marketing efficiency ratio) is your total revenue divided by all your ad spend combined.
MER = total revenue ÷ total ad spend
Why do you need it alongside ROAS? Because advertising platforms claim each other's sales. By default, Meta attributes a sale up to 7 days after a click and 1 day after viewing an ad. A customer sees your product on Instagram, later searches on Google and buys. Meta and Google then both count that order as their revenue. Add up the platform ROAS figures and you often end up higher than your actual revenue. MER uses the figure from Shopify, so it cannot lie.
ROAS, POAS and MER side by side
| ROAS | POAS | MER | |
|---|---|---|---|
| Measures | Revenue per ad euro | Gross profit per ad euro | Total revenue per total ad euro |
| Source | Ad platform | Platform + cost prices | Shopify + all ad spend |
| Level | Per campaign or channel | Per campaign or product | Whole store |
| Break-even | 1 ÷ gross margin | Always 1 | 1 ÷ contribution margin before ads |
| Pitfall | Including VAT, double counting | Cost prices must be accurate | Doesn't show which channel works |
| Use for | Optimising campaigns | Bidding on profit | Monitoring budget and growth |
Worked example: one month of advertising
A store with a 45% gross margin spends €3,000 in October: €2,000 on Google Ads and €1,000 on Meta.
| Google Ads | Meta | Total | |
|---|---|---|---|
| Ad spend | €2,000 | €1,000 | €3,000 |
| Reported revenue (incl. VAT) | €9,680 | €4,840 | €14,520 |
| Revenue excl. VAT | €8,000 | €4,000 | €12,000 |
| ROAS (excl. VAT) | 4.0 | 4.0 | |
| Gross profit (45%) | €3,600 | €1,800 | |
| POAS | 1.8 | 1.8 | |
| Actual revenue in Shopify (excl. VAT) | €10,000 | ||
| MER | 3.3 |
Together the platforms claim €12,000, but Shopify shows €10,000. So €2,000 has been double-counted. The MER of 3.3 is still above the break-even of 2.2 (1 ÷ 0.45), so the ads paid for themselves. Whether any profit remains after shipping and payment costs is shown by the contribution margin. With a 30% margin, it would have been a loss.
Which one should you use?
All three, each at its own level. Use ROAS or POAS to compare campaigns with each other. Use MER to decide whether your total ad budget can go up or down. Also calculate your contribution margin, as described in Store KPIs: the 12 figures you should track, to see what really remains after shipping and payment costs. Want to see these figures daily without doing the maths? Read Shopify dashboard: all your store figures in one place.
Frequently asked questions
What is a good ROAS for an online store?
It depends on your margin. A good ROAS is above your break-even ROAS, which you calculate as 1 divided by your gross margin. With a 40% margin that is 2.5; with a 25% margin it is 4.
What is the difference between ROAS and POAS?
ROAS divides revenue by ad spend; POAS divides gross profit by ad spend. POAS shows immediately whether you are making a profit: anything above 1 is profit.
What is the difference between ROAS and MER?
ROAS measures per channel according to the ad platform. MER measures your total Shopify revenue against all your ad spend combined, preventing double-claimed sales from flattering your results.
Should I calculate ROAS including or excluding VAT?
Excluding VAT. If your store sends the conversion value including VAT, divide your reported ROAS by 1.21.
Want to see ROAS, POAS and MER per day without doing the maths? Ecommetrics automatically puts the figures from Shopify, Google Ads and Meta side by side, excluding VAT. Join the waiting list.