How to Measure Incremental Revenue in Paid Marketing

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?”

AdWords CTA - Q4 BENCHMARK REPORT_v2

What Is Closed-Loop Reporting and What Are The Benefits?

What Is Closed-Loop Reporting and What Are The Benefits?

If you’re running a business in 2018, you certainly know that your success largely depends on your ability to acquire high-value customers at a low cost. If your ability to monetize new customers falls below the cost of getting clicks and sign-ups, your business is in trouble. Closed-loop reporting helps marketers measure and track sales/marketing efficiency to better understand this ratio and improve business performance.

What is Closed-Loop Reporting?

Closed-loop reporting is the process of organizing and presenting data in order to monitor and understand how the investment in paid marketing brings business growth. Closed-loop reporting helps marketers access and link disparate data sources, including multiple ad networks and conversion data, in order to extract meaningful insights and take action at scale.

The closed-loop reporting approach challenges the traditional methods of measuring paid marketing effectiveness with traffic or lead volume, raising the following business questions about deeper-funnel metrics:

  • What kind of ROI are we getting on X ad network/campaign?
  • Did we get any new customers/pipeline from it?
  • How do you know that worked?

This approach supports radical transparency about the return on advertising spend, meaning everyone knows how ad dollars translate into actual business growth; and meaningful KPIs like revenue or customer lifetime value replace vanity metrics.

Marketers that have adopted closed-loop reporting can more easily figure out the best-performing ad, network, and channel and justify the budget increase based on measurable results that improve the bottom line.

Closed-loop reporting consists of three major components, displayed on the graphic below:

closed-loop reporting

Closed-loop reporting connects marketers to the data they need to measure paid marketing effectiveness.

1. Ad Campaigns

Reporting starts with the ad campaigns you’re running on Facebook, Google AdWords, LinkedIn, Bing, Yahoo Gemini, or any other ad network. Consolidating all your cross-network data in one place is the first step to closing the loop in paid marketing attribution.

2. Conversion Data

Conversion data lives in different places, such as spreadsheets, CRM, and other marketing tools. Paid marketers need conversion data to understand if campaigns are bringing actual revenue, not just clicks. Siloed conversion data creates a fuzzy vision of paid marketing performance. Just like driving in the dark with misaligned headlights can be a traffic hazard, optimizing with campaign-level-only data may lead to wasted spend.

3. Return on Investment (ROI)

The link between ad campaigns and conversion data is key to closed-loop reporting and analytics. Once you attribute your conversion data to the original campaign, you can scale campaigns that bring more return on investment, pause the ones that don’t perform well, and easily prove the impact of your paid marketing efforts.

7 Benefits of Closed-Loop Reporting

Today, CMOs and agency clients expect paid marketers to report on how each ad dollar translates into value. In response to this trend, data-minded marketers are adopting the closed-loop reporting approach to show measurable impact. Here’re 7 reasons why closed-loop reporting is the logical step for matured PPC teams:

  1. It helps teams understand the best-performing networks and campaigns.
    Before you dive into optimizations, it helps to understand which advertising networks and campaigns are the most cost-effective so you can better focus your time and budget.
  2. It helps track customer journey metrics from the initial touch to the purchase.
    Using closed-loop reporting, marketers can track everything from clicks to purchase or lead quality, a metric with the most obvious tie to revenue for B2B marketers. A customer journey for B2B marketers includes many touch points, including web actions, emails, events, calls, and coffee meetings (or steak dinners). Closed-loop reporting helps understand the impact of paid marketing on metrics from opportunities to closed-won revenue.
  3. It enables the bird’s-eye view of the impact of marketing spend, potentially lowering cost per acquisition.
    Reports are helpful if you actually understand what the data is telling you. Closed-loop reporting means all your paid marketing data is organized in a logical, easy-to-read way, with the level of granularity as detailed or high-level as you like, so you can easier optimize for cost per customer acquisition across all channels.
  4. It helps marketers to allocate marketing budget in the most effective way.
    How you allocate your marketing budget has a direct impact on the company’s growth trajectory. Clarity about the ROI of each channel takes the guesswork out of planning your paid marketing spend.
  5. PPC teams will gain more credibility and trust within the company by reporting on the most meaningful metrics.
    The closed-loop reporting approach builds the culture of transparency across departments. With the data on how each marketing campaign generates leads and sales in relation to the cost of the campaign, paid marketers can share the results of their work with anyone in the organization, PPCer or not.
  6. It uncovers trends and data to set better goals.
    Easy access to granular paid marketing data helps uncover trends and opportunities for optimizations, as well as help set better goals based on past performance.
  7. It simplifies access to insights needed to maximize the return on investment and justify ad spend to senior management and clients.
    Closed-loop reporting helps paid marketers create PPC reports for senior-level marketing executives, CMOs, and investors who focus on the bigger picture. When you can simply explain the dollars in/dollars out ratio of your campaigns, it’s easier to ask for a budget increase.

Measure the Impact of Each Advertising Dollar

Closed-loop reporting gives paid marketers the ability to quickly visualize, analyze, report, and optimize their ad performance. With this approach, marketers don’t stop at counting clicks and leads — they can measure and optimize performance based on the full-funnel impact of each campaign, across all networks.

The closed-loop reporting approach begins with consolidating all ad network data in one place. Then, marketers can bring in offline conversions from all their tools and platforms, such as CRM data or spreadsheets. By connecting campaigns with conversion data, marketers can understand the ROI of each ad campaign and easily calculate the revenue broken down by each lead source. That means, they can track dollars in and dollars out for each paid search and paid social channel, essentially closing the loop between campaigns and business growth.

advertising data integration