Marketing, as a concept, is devoted entirely to propping up, promoting, and facilitating another facet of a company's business operations — sales. That much is obvious.
The object of any marketing effort is to drive demand and generate revenue. But how can you tell if those efforts actually did that in a meaningful capacity? Incremental sales is the KPI that answers that question.
Here, we'll get a high-level overview of what incremental sales are, how to calculate yours, an example of what they might look like, and a picture of why it's important to consistently measure them.
What are incremental sales?
Incremental sales is a KPI used to gauge the efficacy of a marketing campaign. It's the difference in actual sales you generate during a specific promotion and the sales you estimate you would have generated without the promotion over the same period.
The two most important concepts to consider when approaching your incremental sales are "baseline sales" and "campaigns." The first represents the sales figures you can expect to generate without the marketing efforts you're trying to track.
Campaigns, in this context, are the marketing communications you employ over specific channels to reach your target audience. Those channels could include affiliate marketing, social media ads, PPC advertising, or influencer marketing.
Determining your baseline sales is a tricky process. It might take extensive research and data analysis to pinpoint exactly how much of a product or service you can expect to sell without marketing support. But once you've landed on that number, finding your incremental sales is fairly straightforward. That figure is just the difference between your total and baseline sales.
Incremental Sales Formula
Total Sales - Baseline Sales = Incremental Sales
How do you know if a specific marketing campaign was effective? How can you tell if a marketing affiliate deserves another opportunity? How can you determine whether it's time to shift your focus to a new marketing channel?
Incremental sales is the frankest representation of how far your marketing investments are taking you. Let’s check out an example next to see just how this formula is put into practice.
Incremental Sales Example
Let's imagine a business that sells niche, specialty hot sauces called Boss Sauce by Big Haas the Sauce Boss, Inc. The brand's sales have been lackluster lately and the CEO, Big Haas, is demanding answers, action, and results from her sales and marketing departments.
After careful consideration, the good people at Boss Sauce by Big Haas the Sauce Boss, Inc. decide to launch a promotional campaign over social media, encouraging consumers to make viral videos of themselves sitting with their legs crossed, eating dollops of hot sauce and dumping ice water on their heads to cool down — a campaign referred to as "The Boss Sauce by Big Haas the Sauce Boss Criss-Cross-Applesauce Frost Toss."
Before conducting the campaign, Boss Sauce by Big Haas the Sauce Boss, Inc. refers back to its historical sales data and seasonal trends from similar stretches that weren't supported by promotional campaigns to get a picture of its baseline sales. Then, once the campaign has run its course, Boss Sauce by Big Haas the Sauce Boss, Inc. would compare the actual sales generated during the duration of the campaign to that figure.
So if the company sold $50,000 worth of hot sauce throughout its "Boss Sauce by Big Haas the Sauce Boss Criss-Cross Applesauce Frost Toss" campaign — and its research indicated they'd have sold $40,000 without the promotion — Big Haas and her company would have seen $10,000 in incremental sales.
Why Measuring Incremental Sales is Important
Incremental sales might be the most important metric to consider when keeping tabs on your marketing affiliates' contributions and the overall health of your marketing efforts. For instance, say your company invests $10,000 in a PPC advertising strategy and sees $19,000 in sales.
On the surface, that might seem like a sound investment — one with a $9,000 return — but if you were to do research and find that the baseline sales for that specific product were $12,000, that figure would seem a lot less impressive
You would have only seen $7,000 in incremental sales, meaning that PPC strategy essentially lost you $3,000. Ultimately, the people at your company responsible for shelling out money to marketing affiliates and other channels want to know if they're actually profitable, effective, and worth continued investment. Measuring your incremental sales is one of the most straightforward ways to do that.
Understanding Incremental Sales is Crucial to Marketing Success
Your marketing efforts are only as strong as they are profitable. You need to know whether your investments in channels like affiliate marketing, social media advertising, PPC, and influencer marketing are worth the time, work, and capital they require.
If you can't quantify the impact they have on your business, you can't get the perspective necessary to make informed, rational decisions about the future of your marketing strategies. That's why it's crucial to have at least some understanding of incremental sales.
Editor's note: This article was originally published in June 2020 and has been updated for comprehensiveness.