What is Blended ROAS and Why Does It Need to Replace ROAS?

Blended ROAS (bROAS) is the gold standard for media buying. Meaning you would combine all your efforts to establish your CAC or Customer Acquisition Cost.

So, if you were running ad campaigns on multiple channels; say Facebook, Google, or Instagram. You would add up all the total revenue from paid channels, divided by all the total ad spend from all paid channels.

Blended ROAS is now the north star metric.

Let’s look ahead at all that we are going to cover here:

1. What is Blended ROAS?
2. The difference between ROAS and blended ROAS
3. Key metrics for scaling for eCommerce stores.
4. Why are business owners changing the conversation? 
5. Why should marketers switch to bROAS?

What is Blended ROAS?

Blended ROAS, also known as MER (marketing efficiency ratio) in the marketing community, is simply a brand’s total revenue divided by the total ad spend across all channels. 

You can calculate bROAS using:

(Revenue / Total Marketing Cost) x 100

“Blended ROAS is the total revenue of the business divided by the total ad spend.”

Watch our Head of Growth at XOR Labs, Siddharth Diwedi, illustrate the transition from ROAS to bROAS in detail.

The difference between ROAS and blended ROAS

ROAS takes into account all the sales which are attributed in the ads dashboard.

The major drawback with this approach is that, if you cannot attribute it, that is not your sales at all, hence it does not contribute to the ROAS.

The purpose of any kind of advertising is to generate sales whatever may be the channel like performance marketing, offline advertising, etc. you want your business metric of revenue to actually grow. This is where it differs from ROAS. 

Because ROAS fundamentally just focuses on the revenue from the ad spend should grow. Which isn’t a great way to look at things. Eg. Let’s say you have started a business. ROAs initially was 2.0. You improved it to 2.5 which is a gain of 25%. But the overall revenue of the business stayed the same. If it was 1 Cr it stayed at 1 Cr. Do you think this is beneficial for the business at all?

Key metrics for scaling for eCommerce stores.

When it comes to scaling your eCommerce business, it is imperative to carefully track your business metrics and KPIs for profitability and growth. With eCommerce revenues continuing to grow rapidly, this channel has become a hotspot for many businesses.

 A data-driven approach to growth helps marketers and e-commerce entrepreneurs understand which eCommerce metrics and KPIs they need to pay more attention to. 

With e-commerce trends evolving rapidly, staying up to date-is key to success. Tracking key metrics is the way to the success of an eCommerce store.

Any eCommerce store should focus on these metrics to grow profitably and scale:

1. Conversion rate

Conversion rate is the number of customers who complete a sale after visiting your website and viewing your products. This is closely related to overall revenue metrics. 

2. Gross Margin

Gross Margin is the actual profit earned on top of the cost of goods sold (COGS). This is basically the profit after the sale of the product, taking into account the amount of money you spent on inventory yourself.

3. Average order value

The average order value (AOV) is the value of an average customer’s order on your website.

Track AOVs as a whole and segment them by device type, platform, and traffic source. Identifying the source of customers with the highest AOV can help you run your marketing campaigns with higher ROI.

4. Cost per acquisition

The cost per acquisition shows how much it costs to acquire a new customer. This includes advertising costs, email campaigns, discounts offered, and anything else necessary to actually close a sale to a customer. You can measure it by analyzing your marketing spend and the breakdown per customer.

5. Customer Lifetime Value (CLV)

It tells you the worth of each customer to your business. CLV is the amount of revenue on average that you earn per person throughout your entire life as a customer for your company.

6. Cost-Per-Click (CPC)

It shows you how much it costs each time someone clicks on one of your ads. This eCommerce KPI can be used for both search engines and social media advertising campaigns. This is one of the most popular eCommerce metrics to track.

7. Blended ROAS (bROAS)

It is calculated by taking the total of all your revenue and dividing it by your total marketing costs. This gives you a ratio of the average revenue returned based on advertising costs. This value is how much you earn on each advertising dollar spent. 

8. Return on Investment (ROI)

This eCommerce KPI shows how much your efforts have earned your online business. This KPI takes into account all of your expenses and returns.

The analytics you collect are not only useful when compared against your own metrics.  In general, performance should be benchmarked against that of industry and e-commerce store competitors. These benchmarks help you determine your performance relative to other benchmarks and narrow down areas for improvement.

When you look at this data alongside industry data, you can see how you compare to your competitors.

Why are business owners changing the conversation?

Blended return on ad spend is not a new concept but has grown in popularity in recent years as the reliability and volume of conversion data tracked by paid media platforms have decreased. This is partly due to the effects of third-party tracking and cookie restrictions.

Look at how FB is reporting 1 conversion and Google Analytics is reporting 5. The data is a mess. You can’t report on-platform 100%. It’s a good guide for trends. But your guiding light should be MER/Blended.

So, why are business owners talking about blended ROAS?

So there are two reasons for that:

1. To Get a Holistic View of a Marketing Ecosystem’s Health

Instead of relying solely on in-platform mapping and setting KPI targets specific to each platform, we recommend moving to blended ROAS targets as the primary means of assessing whether your ads are performing well. Metrics continue to play a role in the platform to determine the performance of individual campaigns and assets, but conversion data should be treated with caution.

2. Attribution is mismatched

The whole point of calculating return on ad spend is becoming absurd. A lot of tools allow you to attribute sales or they are not attributing the complete sales to the dashboard. After the iOS 14 update, we have seen a mismatch of almost 50 percent from the actual sales versus the ones which were reported. So in this case even if you are focusing on ROAS to look at the business performance, checking for the performance of the ads is not going to take you anywhere. And once the Android update comes into the picture, things are going to get even messier. 

So if you are not already doing that, you need to shift your conversation from ROAS to blended ROAS. This will get you focused on the overall business performance. 

Why should marketers switch to bROAS?

Marketers live by the rule:

“If ads are performing well, they should be scaled and if ads are falling flat, the spend should be pulled back.”

For reference, a good return on ad spend is typically 2-4x depending on AOV and other factors. Facebook still has metrics that we can use as information, but we know they’re not 100% accurate, making optimization and scaling less reliable.

Relying solely on data reported by Facebook (some real, some modeled, some delayed) greatly reduces the chances of success with paid social media in today’s environment. This is important because Apple’s iOS14 update limited the platform’s ability to track users across apps and its website, limiting the effectiveness of tracking pixels and recorded conversion data.

All of this makes it difficult to trust platform conversion data. A lack of conversion records can severely limit your ability to scale your ad spend, especially when working on your ROI/ROAS goals for the platform to determine budget allocations. This can have a negative impact on sales and other channel growth. Given their high share of sales, paid channels tend to contribute. 

From a non-revenue perspective, the inability to scale up paid media spending limits your ability to reach new consumers and build brand awareness. It also limits your website traffic and limits the growth rate of organic channel followers and email subscribers.

Conclusion: bROAS is the way forward

Blended ROAS provides the best holistic view of how your business performs and enables you to quantify the role of Paid marketing on Organic and other channels. This may seem like a daunting transition, but is certainly one to be made immediately. Digital marketers have been spoiled by an incredible amount of data that let us know exactly which ads were performing the best and exactly how many purchases each ad was generating. 

However, it is worth remembering that advertising was being run before this data became available, with marketers fundamentally looking at Blended ROAS to determine efficiency. In short, this transition is just a return to basics and not one to be feared.

While it’s important to look at platform metrics, it’s important to understand that just looking at advertising data within the platform only allows advertisers to understand and see only part of the overall advertising story.

Ultimately, it all boils down to the same thing, what are your revenues and expenses and your marketing spend.