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.

Founders have also realised that pure performance-marketing spend was essentially financing growth on top of a shrinking profit margin. To address this challenge, many brands are now deliberately setting aside 20-30% of their budget for retention and brand marketing.

As budgets move across acquisition, retention, marketplaces and brand-building, the old way of judging marketing is also becoming obsolete.

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.

As a result, the brands are now turning towards newer metrics such as marketing efficiency ratio (MER), blended CAC, contribution margin after marking expenses and more.

Here’s a bunch of metrics that D2C brands must consider today:

ROAS also loses significance once a brand becomes truly omnichannel. Consider this: Today, 65% of Renée’s sales come from offline stores, while the remaining 35% come from online channels. Of that online business, only about a quarter comes through Renée’s own website. As a result, measuring the ROAS of website ads captures only a small slice of the brand’s overall sales and says little about the effectiveness of its broader marketing efforts. 

The Next Chapter Of D2C Growth 

A new D2C brand still cannot afford to ignore Meta and Google. For now, they remain the fastest way to test whether a product has demand. But Valani points out that advantage will only get more expensive as consumer attention spreads across OTT, YouTube, marketplaces, quick commerce and now LLMs.

So, will the pendulum swing back? Well, Kae Capital’s Vishwanathan believes this is a permanent reset.

“Building a brand purely through Meta and Google arbitrage only worked because capital was cheap and auctions were undersaturated. Neither is coming back,” she said. 

Paid channels can still amplify a business with real retention, community and first-party data. They can no longer manufacture one from nothing.

That is the real shift. Meta and Google have not stopped working; they have stopped being a cheap, reliable shortcut to scale. The brands that win next will be the ones that make several channels work together, track real profit instead of flattering ROAS, and pay attention early to where AI-led discovery is heading.

SPOTLIGHT | How ProMom Wants To Be The Go-To Brand For New Mothers

• ProMom is a Lucknow-based D2C startup manufacturing breast pumps, milk bottle sterilisers and warmers, along with allied accessories for breastfeeding mothers. 
• ProMom’s breast pumps feature a patented uniflow valve and natural latch diaphragm design for stronger and more comfortable suction. It also claims to be ultra-quiet and portable, with all its products made of BPA-free materials. 
• It currently retails products through its own website, kid-focused marketplaces like Firstcry and Babyluv, along with Amazon and Flipkart. It raised ₹30 Cr in a pre-seed funding round led by Fireside Ventures to expand its product portfolio and distribution.

THE DEEP DIVE

ECOMMERCE BUZZ

Zepto Eyes Premium Pantry: The IPO-bound quick commerce major is mulling the launch of a premium grocery service, Select, within its app, focused around imported food and gourmet groceries, to lift order values and margins amid similar moves by competitors. 

Zomato Pilots AI Voice Bot: Eternal’s food delivery arm is exploring an AI-powered voice bot that allows users to place their orders using voice commands and discuss what they might be interested in eating to receive personalised recommendations.

Anmasa Plots Grocery Push: D2C grocery startup Anmasa has raised ₹30 Cr in fresh funding to fuel its expansion into new markets and strengthen its product portfolio. The capital comes as the startup looks to scale operations in India’s competitive online grocery space, where niche brands are racing to build regional dominance. 

Open Secret Goes Offline: Healthy snacking brand Open Secret has secured over ₹50 Cr in equity and debt to deepen its offline retail footprint, expand its product portfolio and invest in AI-led supply chain capabilities. The D2C is betting on omnichannel expansion to accelerate its next phase of growth.

Meesho’s Ownership Shifts: Domestic mutual funds increased their exposure to Meesho even as several early foreign investors pared their holdings after the ecommerce company’s post-IPO lock-in expired. Domestic shareholders held 8.89% of Meesho by June-end, up from 5.55% in March.

THE OPERATOR QUESTION

As the number of D2C brands continues to surge, fighting for the attention of online consumers through digital marketing channels is getting harder. What are the marketing strategies startups need to employ to stay ahead of competition? 

Here’s a four-point marketing playbook shared by D2C hair care brand Traya Health’s CEO and founder Saloni Anand:

Rationalise Spending: Don’t spend on digital marketing until you know that you have a healthy communication product-market-fit. Digital marketing has no entry point barrier, and ads can be run even with a small budget, but the communication needs to be solid. 

Continuously Tweak Your Offering: The ad communication, pricing, visual aesthetic, USP and funnels should be updated regularly. Keep experimenting to constantly improve online reviews rather than just running and scaling ads without feedback-based improvements. 

Targeted Ads For Specific Cohorts: Deploying the right amount of reach, frequency and money increases the chances of success. Rather than spending the entire budget on randomly picked creators for influencer marketing and using those creatives for performance channels, pick creators from a specific state for a campaign for targeted, language-based outreach for increased engagement from one geography. This also makes sales attribution clearer, aiding brands in gauging a specific campaign’s performance. 

The Logo Test: Every ad should have something that screams your brand. To test this, hide the brand’s logo and show the ad to people to gauge whether they can easily identify your communication and design from competitors. 

The post The End Of The ROAS Era In D2C? appeared first on Inc42 Media.