The End Of The ROAS Era In D2C?
Indian D2C brands are shifting marketing budgets towards retention, organic content, and profitability-focused metrics, as customer acquisition costs rise and AI assistants reshape how consumers discover products.
Intelligence analysis by Llama
As customer acquisition costs rise and AI assistants reshape how consumers discover products, D2C brands are increasingly tracking metrics such as MER, blended CAC, and contribution margins, while reallocating 20-30% of marketing budgets towards brand-building and customer retention.
Imagine you're trying to get people to buy your products, but it's getting harder because there are so many other things competing for their attention. To solve this problem, some brands are shifting their focus from just buying ads to also building relationships with their customers and creating content that people will actually engage with.
Analysis
The End Of The ROAS Era In D2C?
For over a decade, the D2C playbook was built on a simple premise: buy attention on Meta and Google, acquire customers at scale, and optimise using clear performance metrics such as return on ad spend (ROAS). However, with rising customer acquisition costs and fragmented attention across creators, marketplaces, and quick-commerce apps, this marketing model has started to fray.
While Indian brands have not yet started treating AI assistants as an advertising channel, it is just a matter of time before they do. According to Viren Inaniyan, the founder of AI commerce infrastructure startup TruCommerce, the shift is already happening in the US.
"Consumers are now getting recommendations without even visiting a brand’s website, which has made marketing much harder to measure," Inaniyan said.
For years, brands could track every click, link it to a purchase, and measure the return on their marketing spend. But when an AI assistant recommends a sunscreen or a soap bar without sending the shopper through a trackable link, that visibility disappears, making it much harder to know what actually influenced the sale.
As things stand today, simply spending more on advertising may no longer guarantee visibility or conversions. Brands will increasingly have to earn their place in AI-generated recommendations through credible product information, customer reviews, consistent content, and, above all, consumer trust.
The New Economics Of D2C Marketing
New-age brands are investing more in content across channels while gradually shifting their marketing mix from paid to organic. According to Saurav Agarwal, CEO and founder at digital marketing agency PromotEdge, a brand starting today may put 95% of its money into inorganic marketing and 5% into content, which could shift to an 80:20 or 70:30 ratio over time.
Ashutosh Valani, the cofounder of Renee Cosmetics recalled that five-and-a-half years ago, when he started the brand, the ratio of ad spend to revenue was close to 1:1. This means that for every rupee of revenue, the brand was burning almost a rupee into advertising and brand-building combined.
As the business matured, the ratio improved to roughly 0.7-0.75:1, and today stands at around 0.45:1. But here’s the catch. Valani said he had expected Renée’s marketing spend to fall below 40% of revenue by now. Instead, it has remained at around 45%, as advertising on Meta and Google, influencer marketing, and competition from large FMCG companies have all become more expensive.
Therefore, many like Renée are no longer questioning how much they need to spend on marketing but what the invested money will bring back, and how much of the customer relationship remains with the brand.
Why ROAS Is Quietly Losing Its Significance
ROAS, which is how many rupees in sales a brand gets back for every rupee spent on ads, has stopped being the metric that decides whether a brand keeps spending on a channel or pulls back.
Sunitha Viswanathan, partner at Kae Capital, explained why a brand can proudly show a 3X ROAS on a campaign, and that number can still be hiding a real profit margin of just 5%, once you subtract the actual cost of goods, discounts, and returns.
Therefore, ROAS has become more of a diagnostic tool to judge whether a specific ad or creative is working, rather than the number that decides whether to scale a campaign up or shut it down.
Further, the single biggest limitation of Meta and Google today is that you can no longer get a clean, reliable read on whether your spend created a real, loyal customer, or just a one-time discount hunter.
Besides, audiences now get tired of the same ad within just 30-45 days, so brands are stuck paying a constant “refresh tax” in the form of new creatives, just to keep their results from sliding.
Key points
- Indian D2C brands are shifting marketing budgets towards retention, organic content, and profitability-focused metrics.
- ROAS is losing significance as a key metric for marketing spend.
- Brands are turning towards newer metrics such as MER, blended CAC, and contribution margin after marking expenses.
- The shift in marketing strategy has significant implications for D2C brands, as they adapt to a changing consumer landscape and seek to build sustainable growth.
As brands adapt to this new landscape, they may find opportunities to build more sustainable growth and create stronger relationships with their customers. By focusing on retention, organic content, and profitability-focused metrics, they may be able to create a more loyal customer base and drive long-term success.
However, the shift away from ROAS as a key metric may also lead to a lack of transparency and accountability in marketing spend, making it harder for brands to measure the effectiveness of their campaigns and make informed decisions.
