Blended ROAS: The Simpler Way to Measure Marketing Impact

Calculating Return on Ad Spend (ROAS) is a common marketing practice. However, with complex customer journeys and challenges in tracking, a more comprehensive approach is needed. Blended ROAS provides this by offering a broader view of how your marketing investments contribute to overall business success.

Understanding Blended ROAS

Blended ROAS, also known as Marketing Efficiency Ratio (MER), offers a big-picture view of your marketing performance. It is simple to calculate as you essentially just divide your total revenue by your total marketing spend as shown below. 

Blended ROAS = Total Revenue / Total Marketing Spend

While this may seem over simplistic in some sense, that is actually one of the major benefits as it allows you to overcome some of the issues you might run into when only looking at channel specific ROAS.

The Pitfalls of Traditional ROAS

Traditionally, ROAS would be channel specific. In other words, you have a ROAS from Google Ads, Meta, OOH, etc. However, let's take a look at why that can lead to some issues in today's marketing landscape.

• Attribution Woes: Assigning credit for a conversion to a single touchpoint is increasingly inaccurate. Customers often interact with your brand through multiple channels before making a purchase. Traditional ROAS models often overemphasize last-click attribution, ignoring the crucial contributions of earlier interactions. Even in data-driven models, it is essentially a guess.
• The Silo Effect: Traditional ROAS can create a siloed view of marketing, where channels compete against each other rather than collaborate. However, this is almost never the case and canch can lead to underinvestment in awareness-building activities that have long-term influence, even if they don't directly result in immediate sales. 
• Privacy and Tracking Changes: Increased privacy regulations and the limitations of cookie-based tracking have disrupted traditional attribution models. This makes it more challenging to pinpoint conversions to specific channels, further undermining the accuracy of traditional ROAS.

The Advantages of Using Blended ROAS

Here's why blended ROAS should be used as your north star (with some guidance from channel specific ROAS).

More Accurate View of the Big Picture

Blended ROAS provides a comprehensive view of your marketing efforts. It shows how all of your marketing investments collectively contribute to top-line revenue. We know customers will likely interact with your brand multiple times before buying so instead of trying to build the perfect attribution engine to assign credit for each channel, blended ROAS just looks at the bigger picture.

Long Term Business Vision

As I mentioned above, one of the issues with channel specific ROAS is sometimes we get so caught up in directly tying marketing to revenue that we end up prioritizing activities that provide short term gains at the expense of long term success. A great example of this is brand building activities like content and organic social media, both of which are difficult to directly attribute to but long term can have outsized impacts - just ask Duolingo or AirBnB.

Better Resource Allocation and Channel Collaboration

Blended ROAS encourages a unified marketing approach since you aren't overlying on what the metrics in one channel are telling you. This avoids under-investing in efforts like brand awareness, even if they don't lead to immediate sales because it looks at the impact these activities have as a whole rather than a sum of parts. As a result, over time companies and marketing leaders begin to understand how the channels work in synergy with one another which in turn guides allocation decisions to maximize return.

Future Proof

Privacy restrictions are disrupting older tracking methods and it doesn't look like the rate of change is going to slow down. This means channel specific tracking is becoming increasingly less reliable. However, since nlended ROAS is less reliant on any individual channel tracking it will be much more adaptable as we continue to become more privacy focused as an industry.

How to Implement Blended ROAS Tracking

As I mentioned above, one of the great things about blended ROAS tracking is how simple it is to calculate. Here are practical steps to get you started:

1. Define Your Scope: Determine which marketing efforts you'll include in the calculation. Typical expenditures include paid advertising, organic content creation, social media management, email marketing, and website-related costs.
2. Gather Data: Collect reliable data on your total marketing spend and total revenue. Utilize your CRM, Google Analytics, and reporting from various advertising platforms to create a comprehensive picture.
3. Calculate and Track: Calculate your Blended ROAS regularly to monitor trends. I typically do so at monthly intervals but you can adjust to fit your cadence (weekly, monthly, quarterly, etc.).
4. Contextualize with Other Metrics: Blended ROAS is most potent when used alongside additional metrics. Keep track of channel-specific ROAS, customer acquisition costs (CAC), lifetime value (LTV), and other relevant KPIs. While blended ROAS may be your North Star, understanding how these metrics are moving with one another will help you begin to understand how it all works together and where to allocate your resources.

Understanding the Nuances and Limitations of Blended ROAS

Like any metric, Blended ROAS has some drawbacks and considerations. Here are a few that I have seen come up more than once in conversations with marketing leaders:

• Time Lags: Be mindful of the potential time lag between marketing efforts and revenue generation. Investments in brand awareness may not yield immediate returns but contribute significantly in the long run. Consider your sales cycle length when interpreting results.
• Resource Allocation: While blended ROAS can help you make better decisions with respect to long term resource allocation, it does require some skill and interpretation. You have to be closely paying attention to channel specific metrics alongside brand activities and really try to understand how everything is working together. Some leaders aren't comfortable with this and would rather just look at the numbers from each channel side by side to decide where to spend their budget.
• Data Quality and Inputs: Like most things in marketing, the accuracy and effectiveness of a blended ROAS model depends on your data quality and the inputs. What you decide to include or exclude will dramatically impact your final number so make sure you are thoughtful beforehand and throughout as you continue to refine and optimize.

Blended ROAS as Your North Star

While traditional ROAS can sometimes lead you down the wrong path, blended ROAS offers a big picture view that looks at marketing activities more holistically. It helps you start to draw connections between activities where there might not be a direct or immediate correlation to sales - despite a major impact over the long term.

Start utilizing a blended ROAS alongside your current channel specific models and get the insight you need to optimize your marketing into the future.