Incrementality: How to calculate the real ROI of your marketing programs

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In marketing, what matters is not how much your target audience bought, but how much more they bought because of your marketing. That’s incremental sales, and it drives your true ROI. This white paper will show you how to calculate it

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Incrementality: How to calculate the real ROI of your marketing programs

  1. 1. © 2013 CatalystThe Case for IncrementalityHow to Measure the Real ROI of YourMarketing ProgramsBy Marc Solomon, Director of Analytics, Catalyst6/3/2013
  2. 2. Executive Summary2In marketing, what matters is not how much your targetaudience bought, but how much more they boughtbecause of your marketingThat’s incremental sales, and it drives your true ROIThis white paper will show you how to calculate it
  3. 3. Incremental Sales3Revenue gained from a marketing activitythat would not have been generated withoutthat marketing activity
  4. 4. Example: Assessing Two CampaignsLet’s compare the results of two hypotheticalcampaigns:Each required $100,000 of marketing investmentSales from targeted customers:Campaign A: $500,000Campaign B: $250,000Campaign A looks like the clear winner:It generated double the sales, didn’t it?
  5. 5. Quick Analyses Can Mislead5But what if Campaign A targeted customerswho would have spent $500K anyway?The $100,000 marketing spend did nothing for you – noincremental salesAnd, what if Campaign B targeted prospects who wouldnot have purchased anything if you hadn’t invested your$100K to reach them?Campaign B now looks like a better investment
  6. 6. Focus on Incremental, Not Total Sales6B is the clear winner!
  7. 7. How to Measure Incremental Sales7Create a baseline to represent the “business-as-usual” results:Ideally, a controlled experiment to isolate the factor you’retrying to measure (e.g., impact of a marketing campaign):Pick a control group: A random portion of your target audience whowill not be marketed toMust look just like customer group who will receive marketing to ensureapples-to-apples comparison
  8. 8. How to Measure Incremental Sales8Incremental Sales Calculation:Sales from Targeted Audience – Sales from Control GroupYou can definitively attribute the difference to yourmarketing campaign
  9. 9. Alternative Baseline Approach9Sometimes it’s not feasible to create a controlgroup without exposure to the marketing:Historical trends can be used to estimate the baseline salesyou’re expecting without the new marketingHowever, this isn’t highly reliable and can potentially lead toincorrect conclusions
  10. 10. Incremental Channel Impacts10A parallel approach can assess the impact ofspecific marketing channels on sales:The key is comparing results between groups of customerswho are generally similar except for marketing exposure
  11. 11. Practical Considerations11Measuring incremental sales works well in direct marketing… but is difficult to do with mass marketing/advertisingwhere it is hard to create an identical random control groupIt is typically worthwhile when there are large targetaudiences and there is minimal opportunity cost to holdingout a statistically significant control groupIf you can’t measure incrementality directly, use historicaltrends and forecasts … you’ll still get a more accurate readof your real ROI
  12. 12. Final Words12Incremental, not total, sales should always beused to determine your marketing ROI.
  13. 13. About the Author13Marc Solomon, director ofanalytics at Catalyst, holds anMBA from the StanfordGraduate School of Business.He has leveraged analytics todrive results for Fortune 500companies for nearly 20 years.
  14. 14. 14Catalyst is a direct and digital marketingagency that knocks big data down to size. Wepair insight with analytics to take theguesswork out of marketing decisions. Think ofit as Science + Soul.About Catalyst/scienceplussoulwww.catalystinc.com info@catalystinc.com

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