Incrementality is Key to Accelerating ROI Growth
Do you know the impact that marketing has on your business? While more traditional metrics like Cost per lead, cost per acquisition and click-through-rates may look good on paper, measuring success by those metrics offers a very narrow view of your marketing investment. Even with more sales-focused metrics like return-on-ad-spend (ROAS), we’re often left wondering how much of those returns would have happened without spending the media dollars.
The fundamental question we should be trying to answer as marketers is not how much your audience bought, but how much MORE they bought because of your marketing. This is where incrementality comes into play.
Incrementality gives marketers an accurate method for answering critical questions such as:
Am I investing in media channels that grow actual revenue for the company?
What happens if I spend more, or stop spending with media vendor A?
Which messaging or creative strategy influences new customer growth?
What is the value of different customer touchpoints?
Optimizing Marketing Campaigns for Incremental Revenue
Let’s say you spend $250K on each of your core digital channels with the goal of driving sales growth...
Spend: $250,000
Revenue: $700,000
ROAS: 2.8:1
Affiliate
Spend: $250,000
Revenue: $500,000
ROAS: 2:1
A standard ROAS or CPA measurement would tell you Facebook is delivering the most value. You might even optimize more of your investment toward Facebook at the expense of your Affiliate program. But what if I told you that 70% of Facebook audiences would have purchased from you anyway, compared to only 5% of your affiliate audience? Defunding affiliate would have cost you hundreds of thousands in incremental sales.
Incremental Cost vs. Revenue
Spend: $250,000
Revenue: $700,000
Incremental Rev: $210,000
Incremental ROAS: 0.84:1
Affiliate:
Spend: $250,000
Revenue: $500,000
Incremental Rev: $475,000
Incremental ROAS: 1.9:1
Incrementality testing provides visibility into how your efforts are actually driving customer growth, independent of other variables. It helps you make smarter investment and optimization decisions. It also holds media vendors more accountable to the results they claim. And that is why it is the future of marketing.
Measurement is critical for two things. One is to understand the ROI we are getting and correctly account for the source of that growth. And second, to enable optimization across our different paid channels so we can decide where our next dollar of marketing budget should be spent.
- Alok Gupta | Airbnb
Measuring Incremental Lift
The simple method for measuring incrementality is through randomized control/expose or holdout lift studies. Lift studies are available through most of the go-to digital advertising platforms, and there are a variety of third-party solutions that allow you to run more complex attribution modeling and analysis. Here's the general methodology:
Control Group
percentage of your target audience that doesn’t receive marketing
Expose Group
percentage of your audience that sees your marketing
Measurement
% lift in sales between the expose group and control group
Let's put those pieces together into a practical scenario. Say you want to determine the impact of digital media on your marketing funnel. You can answer this by setting up a geographic lift test that groups similar DMAs into test and control groups - exposing (or overexposing) each population to different combinations of your media mix.
Multi-Cell Geographic Control/Expose Test
Example 1 | Geographic Lift Test
Each market segment needs to have similar attributes - population, media opportunity, etc. - and should be spread out to avoid audience crossover as much as possible. In this example, you can measure sales lift across each test cell to establish a baseline incremental ROI.
Alternatively, this can be accomplished through sequential testing - shutting media off in certain areas and measuring impact. Although this may be less desirable for many brands vying to hit growth goals.
Based on the data shown on the right, we can see the trickle-down effect of our channel mix, with TV generally driving the most incremental revenue, closely followed by digital channels.
Incremental Impact on Revenue = Test CVR% - Control CVR% / Test CVR%
This is just one example of how you could extract incrementality across channels. This methodology could also be used to understand the impact of new audience, creative or optimizations within individual channels.
Example 2 | Multi-Cell Audience Conversion Lift Study
This testing framework evaluates the incremental impact on revenue from adding persona audiences. Facebook automatically removes 10% of your target audiences as a holdout control group. This holdout group will never see one of your ads.
Conversion Lift studies typically require 50 minimum conversions and a recommended 30-day testing period to generate significant results.
Key Metrics:
2,121 Incremental Conversions
1,347% Incremental Conversion Lift
$25.12 Cost Per Incremental Conversion
Measuring Digital ROI with a Testing Roadmap
Facebook/Instagram and Google Ads both offer self-serve (or managed) Conversion and Brand Lift study features. This makes it easy to design experiments to measure the impact of ongoing strategic or tactical optimizations you make to your campaigns.
We incorporate lift study measurement into our overall testing strategy through learning roadmaps. Here's an example of what a testing roadmap might look like for Facebook.
By the end of this testing sequence, we are able to definitively say that new strategies delivered an additional $7.1M in revenue.
Incrementality is a vast topic with various moving parts. From attribution models and technical integrations, to experimentation and frameworks, there’s a lot to sink your teeth into.