Marketing is all about supporting and improving sales outcomes. By measuring incremental sales, marketing teams, sales managers and business owners can better understand the success of their promotional sales and marketing activity and direct future investment accordingly.
Depending on your organization, for example, you might want to quantify the results of initiatives like:
Short- or long-term advertising campaigns geared at driving new business
Upselling or cross-selling activities carried out by sales personnel
Special deals or offers extended to existing accounts
In every case, incremental sales is a valuable tool for interpreting marketing-based outcomes in financial terms.
With the pandemic receding, spending on advertising worldwide is expected to resume its growth trajectory and surpass $630 billion USD in 2024.
To help you make the most of your sales and marketing budgets, this guide will break down the question of what is incremental sales by examining why it’s such an important number to measure, how to calculate it and what to watch out for when you do.
Incremental sales refers to the value of products or services sold during a tracked period of time that goes over and above what your business might normally sell.
Because the difference being measured is typically the result of carrying out a specific promotional activity, the incremental sales definition can be extended to also describe a sales metric that functions as a key performance indicator (KPI) of marketing effectiveness.
By comparing your actual sales over the course of a particular promotion, for example, with your promo-free sales expectations for that period, you can measure the financial performance of a dedicated marketing channel or sales campaign.
In marketing and advertising, you may also use “incrementality testing” to measure the impact of your campaigns and how many new customers they brought in (versus your usual marketing strategy).
Now more than ever (according to Gartner) demand generation relies on collaboration between marketing and sales.
With the core aim of marketing to drive demand and generate revenue, vice president analyst at Gartner for Marketers Noah Elkin says, “Implementing a shared vision and processes enables both departments to focus on collectively serving the needs of their highest-value customers and prospects.”
So, how can you tell if your company’s joint efforts to meet prospect and customer needs is making a financial impact? One way is by using incremental sales to understand the effect of your promotional work on total sales growth.
Measuring incremental sales helps gauge marketing return because it highlights new revenue that can be traced back to a specific sales promotion or marketing event. When it comes to attribution, it is vital that you know which sales and marketing activities have moved the dial.
That makes it an important metric for:
Sales teams. Incremental sales helps show how well you’re attracting qualified leads and converting them to paying customers.
Sales and marketing managers. Demonstrated revenue growth tied to specific activity helps direct promotional initiatives and sales training programs.
Your company in general. Using performance metrics like incremental sales is the only way to know if your marketing spend is productive and whether you’re meeting key financial and business goals or not.
According to Google, identifying the true impact of a given change in marketing spend is a fundamental sales challenge. Calculating incremental sales can help you accomplish that goal.
Because the incremental sales formula shows an increase in sales as the result of promotional activity, to calculate it, you’ll first need to pick a dedicated timeframe to measure and a marketing, media or ad spend to target.
For example, you might want to test the effects in a given time period of your annual investment in specific…
Content marketing channels
Social media channels
Activity or customer touchpoints
Product add-ons or upgrade promotions
PPC (pay-per-click) advertisement models
Once sales results are in for the timeframe you’ve chosen, you can use tools like your CRM’s insights and dashboards to collect your historical sales data from previous (promo-free) periods and create a simple chart like the one below.
It’s usually best to include data from three to five years for annual spend activities, or from at least the past 13 months for monthly promotions.
Armed with this chart, you can now move on to calculating your incremental sales figure.
Incremental sales formula
Using the example chart above, it’s easy to plug the total sales from your 2020 promotional period into the formula below:
Incremental Sales = Total Sales - Baseline Sales
Incremental Sales = $190,000 - Baseline Sales
To get the baseline sales amount for the same period, however—which is the sales volume you’d normally expect to generate during that time—you’ll need to perform some educated guesswork.
One common approach is to roughly calculate your company’s average annual sales growth using the previous (promo-free) periods in your chart, like so:
Average Annual Sales Growth = $25,000+$35,000+$30,000 = $90,000 ÷ 3 = $30,000
Now, you can calculate what you’d normally expect to see for sales volume in 2020 (your baseline sales) and plug that amount into the incremental sales formula.
Baseline Sales 2020 = $140,000 (2019) + $30,000 (average annual sales growth) = $170,000
Incremental Sales = $190,000 - $170,000 = $20,000
Make sure you don’t confuse your increased sales volume ($20,000, in this case) with profit. Because most marketing activities, though a measure of profitability, will have a price tag attached, you’ll need to subtract the cost of your ad, event or promo from your incremental sales figure to gauge the financial benefit gained.
According to The Nielsen Company, measuring “incremental lift” is especially beneficial for determining whether your marketing is working within a particular segment.
In their article, the company says: “If you’re trying to reach a certain audience, and there isn’t a strong lift with that group, you can change your messaging (or offer) to reach them more effectively.”
But while promotional efforts drive incremental sales, interpreting the results of your calculations won’t always be an exact science.
As we’ve already seen, for example, baseline sales estimates rely heavily on best guesses derived from historical data. Equally important is the fact that total (or gross) sales can be impacted by more than just the marketing campaign you want to measure.
To help take these discrepancies into account, let’s look at six internal and external factors that can affect sales volume variance and change the incremental sales metric.
1. Internal communication
To confidently assess sales volumes attached to promotional periods, sales and marketing must work hand in hand.
What to watch: It would be vital for marketing to communicate with sales, for example, if they were planning to run a test campaign, so sales wouldn’t inadvertently contact existing accounts with a special loyalty offer during that same period.
2. Sales and marketing staff turnover
What to watch: Be aware of the potential revenue implications if a bigger budget has led to improved sales training or additional personnel, for example, or if experienced marketers or sales professionals have recently moved on.
3. Changes to products, services or processes
Changes to your offering could affect normal sales volumes prior to or during a promotional spend measurement period.
What to watch: There may be positive or negative sales repercussions if you’ve lately revised a service, put out a new version of your best-selling product or automated an aspect of your sales process that’s led to fast-tracking more deals.
4. Marketing impact measurability
The results of marketing and sales campaigns aren’t always directly trackable or quantifiable. For example, when you run an event to generate incremental sales, some buyers might be influenced by it but not take action until after the measurement period is over.
What to watch: Rather than clicking on a trackable digital ad or directly sharing a promotional video, some prospects may view your ad, then visit and purchase from your website later, or initiate a sale by telling their buying manager about your video contents in person.
5. Competitor activity
Competitors have the potential to skew your sales figures by temporarily stealing customers away.
What to watch: A new competitor mightgo after your target audience with an irresistible introductory offer, while an existing competitor could coincidentally run an enormously successful sales campaign during the same period as your targeted marketing activity.
6. Unavoidable external events
Many sudden or subtle external influences can cause positive or negative, short-term or long-term changes in company sales and supplies.
What to watch: Common examples include economic upturns or downturns, changes to laws or regulations that govern your product or service, natural factors like pandemics or weather-related disasters and shifts in customer needs or expectations.
As important as incremental sales measurements are to all revenue teams, from retailers to affiliate marketing managers, remember that they only tell part of your company’s sales and performance marketing success story.
By understanding what else might be contributing to sales volume variance, you can interpret the results of your incremental sales calculations more realistically and use them more reliably in conjunction with other worthwhile metrics, like the return on sales ratio (ROS) for example.
Now that we’ve answered the question of what is incremental sales, how to calculate it and what it means for your business when you do, you can get started improving your sales results by evaluating your promotional efforts.
If you’re not already set up to track sales revenue over dedicated periods of time, you may want to take care of that first by adopting a versatile CRM software like Pipedrive.
With simple analytics and dedicated sales dashboards, Pipedrive makes it easy to keep your entire organization informed. The more integrated your sales and marketing data and teamwork, the more effective using KPIs like incremental sales becomes.
Once your data is sorted, you can take steps to:
Determine the best period to measure for the marketing spend you have in mind (it might not always be useful or practical, for example, to wait on an entire year’s worth of data, especially for short-term ads or monthly sales promo events)
Examine the sales volume variance factors that may be at play inside and outside your company (this will help you figure out how to come as close as possible to accurate sales figures for your various marketing activities)
Optimize your promotional efforts and budget by designing carefully targeted and measurable campaigns with clear-cut objectives (this will make it easier for incremental sales to reveal the promotional initiatives that work best for your company)
Don’t forget to always subtract your marketing spend for the period being measured from your incremental sales to arrive at the truest possible value for any new marketing channel.
Then, once you’ve established targets and benchmarks for measuring incremental sales, you can use Pipedrive dashboards and other tools to monitor your data.
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