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Understanding Blended ROAS
As an ecommerce business owner, you always want to see what’s working and where there’s room to improve, especially as it relates to your paid advertising efforts.
But while it might have once been easier in digital marketing to follow attribution by channel, changes to your business and how data is tracked across various platforms (i.e. iOS updates) makes relying on that method alone unreliable.
That’s where looking at Blended ROAS (return on ad spend) comes in.
At Tydo, we define blended ROAS as how much you generate in sales for every dollar spent on paid advertising. It shows up as a multiple (1x, 2x, 3x). You can use this metric to see if your investments in paid advertising are paying off.
For instance, if your blended ROAS is showing 3x, it means that for every $1 spent in a particular channel or campaign, you’re making $3 in return.
Tracking metrics like Blended ROAS means that instead of solely focusing on revenue by channel, you get better insight into marketing costs and your ROI on paid marketing efforts at a macro level.
How to calculate Blended ROAS
Blended ROAS = dollar value of sales / total advertising spend from all connected ad channels
Data sources: Shopify, Connected Ad Channels (i.e., Facebook, Google Ads, etc.)
Important note: At Tydo, we exclude sales from test orders and canceled orders from this calculation.
Example
Suppose you run an online shoe store. In July, you look at the data and see you spent $2,000 on Snapchat Ads, $10,000 on Facebook Ads, and $7,500 on Google Ads.
The business earned $1,000 worth of sales from Snapchat Ads, $15,000 from Facebook Ads, and $6,000 from Google Ads.
Using the formula, your blended ROAS = ($1,000 + $15,000 + $6,000) / $19,500 = 1.13x
This means you're making a little more than how much you’re spending on advertising.
Takeaway
Blended ROAS is like putting money away for retirement. You’ll deposit funds into different investment channels, but the portfolio shows you the big picture of your wealth and your ROI.
This metric is also useful when you’re running campaigns across multiple marketing channels. You don’t just want to see how effective a single channel is; rather, you should be more interested in how the campaign performs as a part of marketing efforts.
Why does tracking Blended ROAS matter?
- It gives you a birds-eye view of the business. Are your advertising campaigns bringing in revenue? Are you spending more than you can afford to? This metric helps you see if it’s time to refine or go all in on your current strategy.
- It helps you see where to budget. Are Facebook Ads driving enough revenue to your business? Maybe TikTok Ads are where you’re seeing the most traction. Looking at Blended ROAS offers the insight needed to make informed business decisions.
Ready to level up your learning?
Read more about Blended ROAS
Blended ROAS vs. ROAS by Channel
Frequent changes to data collection procedures and updated privacy policies make it especially important for ecommerce businesses to stay up-to-date and look to blended metrics. After Apple’s iOS 14.5 update in April 2021, 96% of users opted out of handing their data over to third-party applications, per Mashable.
Because of changes like this—and the potential for future updates—relying too heavily on a single channel for your data is risky.
Instead of narrowing in on a single channel (which may not give you an accurate picture of profitability or sustainability), Blended ROAS gives you better insight into the health of your business and advertising efficiency.
But that’s not to say you shouldn’t look at each platform individually. Platform metrics are important and affect the overall big picture (especially your marketing spend!).
A helpful way to reframe how to look at blended ROAS is like this: customers encounter dozens of roadblocks with every interaction online. They might see an ad on mobile but purchase it on a tablet. They might opt out of third-party tracking. It might take numerous ads until they buy.
Considering these points helps you see that while a platform is an important part of the business, it’s just a small piece of the puzzle.
Cody Plofker, CMO at Jones Road Beauty, says, “When it comes to attribution, most people are spending too much time trying to answer questions that can’t be objectively answered and spending far too little time answer the objectively true ones which are your blended metrics. Blended metrics are truth, attribution is subjective.”
Blended ROAS vs. MER
Marketing efficiency ratio (MER) and blended ROAS are the same: they both highlight the health of your business's advertising efforts. MER stands for marketing efficiency ratio.
Andrew Foxwell says that a good MER depends on a few factors but usually falls between 2-4x.
Why are both useful? Tracking metrics on a singular platform provides useful information, but it doesn’t give you the full picture. Plus, it’s not a good idea to rely on it completely. Why?
Because it’s too unreliable of a metric to serve as a foundation for scaling or optimization.
How can Blended ROAS help you?
Take a step back and see the bigger picture
Previously, marketers were only interested in looking at platform-specific metrics and related goals (hitting a 4x ROAS on Snapchat, for example). But, as most realized, this focus doesn’t help you see the full picture.
Instead, look at Blended ROAS to analyze your advertising efforts at the macro level. Get even more insight into how your campaigns are doing by comparing this metric over various periods—monthly, quarterly, and yearly.
Want more data on where your customers are coming from? Consider implementing a post-purchase survey with a tool like KnoCommerce. You can discover more patterns and insights about your customer behavior.
Jeremiah Prummer, cofounder and CEO of KnoCommerce, says running an attribution survey can be helpful, especially for brands not spending early enough to see how it impacts Blended ROAS metrics.
Discover trends and optimize your marketing campaigns
Do you see your Blended ROAS increasing over time? That’s a good thing!
It means that you’re earning more in sales than you’re spending on advertising. In that case, you can increase your ad spend or allocate profits to other parts of your marketing budget.
Track your Blended ROAS when you:
- Implement new features on your website
- Drive traffic to a new landing page
- Work with new creators or influencers
- Test new ad copy
- Add captions or text overlay to ads
Looking at quarterly trends gives you deeper insight into what’s working or needs adjusting and offers you benchmarks. Then, you can look back at previous quarters and compare performance.
Is there a good ROAS number?
There’s no one-size-fits-all number. Depending on the brand, vertical, industry, and even average order value (AOV), your blended ROAS can vary. Regardless, you want that number to be above 1x. If it’s below, that means you’re spending more on paid advertising than the revenue coming into your business from ads.
An ideal ROAS number makes sense for your goals and business.
