Incrementality: How to Stop Overpaying for Advertising

Incrementality is a way to precisely determine the contribution of advertising to sales or other goals. This method helps identify how many people purchased a product because they saw the ad versus how many would have bought it anyway.

Why incrementality is important and how to calculate It

When marketers want to assess which advertising works best, they often rely solely on the last-click attribution. This means they assume that if a person clicked on an ad and made a purchase immediately, that specific ad drove the sale. While convenient due to the availability of such data, this approach is not entirely accurate.

A user may have seen your ads multiple times across various platforms before deciding to make a purchase. Thus, we cannot confidently attribute their decision solely to the last click. This is why calculating incrementality is essential.

To evaluate the effectiveness of marketing efforts, such as an email campaign, start by calculating all associated costs: payment for the email service, email design, work by the marketer and copywriter, client bonuses, and additional tools. Comparing these expenses to the revenue generated specifically because of the email campaign will help you understand its profitability.

How incrementality works in marketing

Let's consider an email campaign that generated $1,500 in revenue. This result can be calculated in different ways: using the last-click attribution method, through end-to-end analytics, or by evaluating the performance of a specific campaign.

We spent $150 on sending the email, and the profit margin is 60%.

Step one

First, we determine our net profit. To do this, subtract the expenses from the revenue and multiply the result by the profit margin.

Profit = ($1,500 – $150) * 0.6 = $810

This means the email campaign performed well: we earned more than we spent. Now, we can analyze the results.

Step two

Test without the email campaign. What happens if we stop sending emails and observe how revenue changes? It might turn out that the email campaign does not significantly influence purchase decisions.

Step three

Next, calculate revenue without the email campaign. During the period without emails, the audience generated $600 in revenue with $0 in expenses: Profit without email = ($600 – $0) * 0.6 = $360

Step four

Draw conclusions. Now it’s important to understand the real contribution of the email campaign to revenue. Calculate the difference between the profit with the email campaign and without it:

Incremental revenue = profit with email – profit without email

In our example: $810 – $360 = $450

The $150 spent on the email campaign generated an incremental net profit of $450. The actual profitability of the email campaign was not $810 but specifically $450. This means that expenses accounted for one-third of the additional profit generated. Such a result confirms that the email campaign was effective and helped nudge the audience toward making purchases.

All channels work together, so it’s important to avoid thinking that only the email campaign drives sales. A user might have seen your ad, stumbled upon a post on Twitter, heard about you from friends, or simply found the website on their own and made a purchase.

Marketing campaign analysis

First, you need to determine what exactly you want to measure. Below are several potential channels—select the ones that matter most to you and conduct an experiment.

1. Email effectiveness. To understand how much emails truly impact revenue, you could temporarily disable all email campaigns. However, this is quite a risky move.

2. Strategy comparison. For example, which approach is more profitable—sending emails daily or limiting campaigns to one or two per month?

3. Sequence analysis. Evaluate how effective each email sequence is: where customers make purchases and where time is simply wasted.

4. Evaluating specific campaigns. Here, you determine the actual effectiveness of email campaigns. Note: it’s not worth analyzing the profitability of transactional emails—they are essential for subscriber interaction. Instead, focus on assessing the effectiveness of bulk campaigns or sequences aimed at upselling.

How do upselling strategies work? Read more in the article “Upselling: How It Helps Increase Average Order Value.”

Next step is defining the audience. To test incrementality, you need to create a group of users who won’t receive marketing emails.

This can be done by creating a segment. Select a small group from your overall mailing audience who will not receive marketing emails—these individuals will only get transactional emails. If you’re testing an email sequence, simply exclude part of the users from its launch. This is a simple and convenient approach, especially if you need to analyze revenue from a specific email or sequence.

Then choose a key metric. Think about what matters most for your business. Online stores usually focus on revenue, while creative projects prioritize audience retention. Identify the metric that best reflects the success of your campaigns.

How is audience retention determined? And how can you improve it? Read the article “Retention Rate: How to Calculate and Improve the Metric.”

Calculating the required conversion. Before launching the test, it’s essential to calculate the necessary conversion rate to ensure the results are statistically significant. You can use calculators for this. Once the goal is reached, stop the experiment and proceed to analysis.

Why are such tests needed? The results help improve your business: they reveal which strategy works better, where to allocate additional resources, or whether you’re overspending on customer acquisition.

However, it’s important to note that these experiments are most effective for brands with an established reputation. For startups, such tests may not be feasible unless you want to test a new approach on a small sample. This minimizes risks and provides valuable data.

Need help evaluating marketing strategies? Try Altcraft CDP. It allows you to test campaigns for email, SMS, push, and other available channels.

What is incremental marketing

Incremental marketing is an approach that involves gradually increasing advertising spend and product promotion based on predefined goals. Instead of immediately launching a large-scale marketing plan, a company divides it into several stages, assigning specific objectives to each. Funds are allocated only if the results of the previous steps meet expectations. If at any stage the results are unsatisfactory, the campaign is paused.

This method is beneficial for brands that are not ready to invest significant sums into large-scale advertising campaigns. It allows smaller organizations to allocate funds as they become available and only if each step yields results. This approach is particularly suitable for promoting new or lesser-known products as it reduces risks. If consumers do not respond positively to the product, it helps avoid significant losses.

Incremental marketing is also employed by large companies aiming to minimize risks and avoid investing in advertising for products that fail to resonate with consumers or align with current market conditions.

How incremental marketing works

The long-term success of a new product often depends on how well and effectively the marketing campaign is executed, which is closely tied to the size of the promotion budget.

However, budgets are often limited, and new products are not always successful. Small companies may lack the resources to immediately invest in a large and risky advertising campaign. In such cases, an incremental strategy comes to the rescue.

In this approach, marketing funds are allocated as they become available and depend on the success of previous tasks.

Each new campaign begins only after the objectives of the previous stage have been achieved. At every step, the brand evaluates whether to continue the campaign, pause it, modify it, reduce its scale, or increase it. Incremental strategy helps advertisers understand how receptive their audience is to their product or service and whether interest will persist in the future.

By dividing marketing into stages, companies can evaluate the results of each step and make adjustments as needed. This approach prevents the entire budget from being spent at once and ensures funds are used wisely.

How to use incremental marketing

The primary work takes place during the planning stage, when marketers and department heads determine the campaign’s scale. The strategy is broken down into stages with specific triggers—these can include metrics such as sales growth, budget increases, timelines, or other indicators.

Once the plan is approved and the triggers and strategy stages are discussed, the company proceeds with implementation. Decisions about moving to the next stage are made based on whether the required performance metric has been achieved. This step should only be taken when the target effectiveness has been reached.

Conclusion

Incrementality is a strategic approach that allows companies to effectively manage marketing resources by increasing budgets and expanding campaigns based on achieved results. This method minimizes risks, which is especially beneficial for small and medium-sized businesses. It enables companies to adapt their strategies and invest in marketing only when it is truly justified.

By leveraging incrementality, businesses can test marketing channels, evaluate their effectiveness, and make decisions that optimize spending and improve audience engagement. This increases the likelihood of success while ensuring a more precise and impactful connection with the target audience.