A blended rate hides the price of each role behind one number. Instead of billing the strategist at $400 and the designer at $200, the agency quotes "we work at a $275 blended rate" — easier to sell, easier to staff, but also easier to lose money on if the actual mix skews senior.
For agencies, blended rates are useful when project staffing is genuinely fluid or when clients refuse line-by-line pricing. They protect speed in proposals and shield the agency from "why is the strategist so expensive" conversations.
The risk is invisible margin compression. If the proposal assumed 60% mid-level and the project ends up 80% senior, the blended rate is now under-pricing the work — and nobody will catch it until effective rate is reviewed at the end. Sanity-check every blended-rate proposal against the actual planned staffing.