Closed-loop Reporting, PPC Reporting, Analytics

How to Measure Incremental Revenue in Paid Marketing

If you can drive revenue and growth above the cost of advertising, why would you want to cap your marketing budget? The truth is, that’s not how most marketing organizations function. The status-quo approach focuses on clicks and sign-ups, not revenue, and this model of thinking is clearly broken.

Measuring incremental revenue helps marketers understand and prove the real impact of advertising – calculated in dollars, not clicks.

Here’s a hypothetical example:

 

measuring incremental revenue image 

With incrementality measurement, you can more accurately attribute value to each paid social media campaign.

A subscription service startup expects to make $100,000 off their services in a typical month without advertising. In March, while running a Facebook campaign that costs $10,000, the startup makes $150,000 off their subscriptions. To calculate incremental revenue and measure the effectiveness of their advertising, the paid marketing team runs the following calculation:

$150,000 - $100,000 = $50,000

The incremental revenue generated by the paid marketing team equals $50,000.

Or, in other words, those Facebook ads just earned their business an extra 50k.

What’s incremental revenue in paid marketing?

Incremental revenue is revenue that wouldn’t have happened without a specific paid marketing campaign, all other things being equal. This metric is radically different from other PPC metrics -- and way more impactful.

Incrementality measurement helps marketers understand the effectiveness of paid campaigns by comparing differences in outcomes between an audience that saw the ad and a comparable audience that didn’t. This metric shows the real value driven by paid marketing, which ultimately helps the paid marketer decide on where to invest ad dollars -- and justify a budget increase if they need more money to spend.

The CEO of a company is naturally interested how much revenue the company produces in a given time. The CMO of a company should be equally interested in the following question:

How much money did the company make thanks to paid marketing?

You can answer this question with incrementality measurement.

 

facebook ads incremental measurement ROI
 
With direct-response ads, incrementality measurement can help you track how much revenue is attributed to a specific paid marketing campaign.

Calculate incremental revenue to prove the impact of paid marketing

Another way to show how incrementality measurement works is to compare two hypothetical digital campaigns.

Say a company is running two Facebook marketing campaigns, each of which requires $10,000 investment:

The sales for campaign A are $100,000.

The sales for campaign B are $75,000.

Which campaign delivered the best return on ad spend?

Let’s see.

Facebook campaign A:

With a marketing spend of $5,000, actual sales at $100,000, and expected sales at $100,000 (without marketing, based on historical data from a similar time period or based on data from control group not exposed to advertising messaging), that brings the incremental ROI of paid marketing campaign A to....$0.

Facebook campaign B:

With a marketing spend of $5,000, actual sales at $75,000, and expected sales at $0 (without marketing, based on historical data from a similar time period or based on data from control group not exposed to advertising messaging), that brings us to $75,000 in incremental revenue (thanks to the marketing campaign).

Even though the sales figures look better for campaign A, if you compare to control group or historical data, campaign B is clearly the winner from a paid marketing perspective.

How to measure incremental revenue

You can calculate incremental revenue/sales as Actual Sales (thanks to marketing) - Actual/Expected Sales (without marketing). (If you can attribute the difference to your marketing campaign).

So, to calculate IR, you’ll need to create a baseline metric to represent the average results based on historical trends (how much you sell in a given time, no ads). Or, if you can isolate the variable you’ll be measuring (your ad campaign) by having your target audience very similar to your control group (comparing apples-to-apples), you can measure incrementality in an experiment.

Prove the impact of paid marketing with closed-loop reporting

Measuring incremental revenue and other meaningful business metrics in paid marketing is easy with closed-loop reporting.

You can track the incremental revenue from each ad network, campaign, ad set, or ad when you consolidate all your cross-network data in one place and connect it to conversion data that lives in your CRM, spreadsheets, or any other platform or tool.

When you bring in your offline conversions from different platforms and tools and connect those with your cross-network campaign data, you can understand the incremental revenue for each (that is, if you set your baseline revenue or compare it to a control group in an experiment).

Optimize your campaigns for incremental revenue

Once you close the loop between campaigns and revenue across different networks, you can see the full picture and make improvements. With a clear view of how each ad campaign translates into revenue, not just clicks, you can set up automated rules to pause or scale campaigns up and down based on custom metrics (such as incremental revenue).

 

calculated metrics
AdStage’s Calculated Metrics (currently in beta) allows paid marketers to automate campaign optimizations based on custom metrics.

 The importance of incremental revenue in paid marketing

As we've seen, incremental revenue is a powerful metric for paid marketers to track how much revenue can be attributed to a specific marketing campaign. Incrementality measurement shows the real effectiveness of advertising by comparing how much money a business makes with marketing vs. without marketing, all other variables being equal.

Incremental revenue not only proves the value driven by paid marketing, but also helps to improve performance by tracking more meaningful PPC metrics. As a result, marketers will invest in the most effective channels -- and justify a higher spend if necessary.

With calculated metrics (currently in beta), you can also set up automation to tweak your campaign settings based on custom metrics in near real-time, optimizing for business results, not clicks.

As paid marketers are increasingly held accountable to revenue, closed-loop reporting solutions will help measure, optimize, and report on deeper-funnel metrics. What's more, measuring incremental revenue will make it easy to report to the CMO or the board because now you know how to answer the critical question: “How much money are we making thanks to paid marketing?”

Anya Pratskevich

A senior content marketing manager on the AdStage team, Anya manages AdStage's blog, co-hosts the PPC Show, and curates a weekly newsletter with top news in ad tech. Send her tips, pitches, and guest post ideas to anya (at) adstage (dot) io. Anya tweets, occasionally, as @pratsaa.