If you know a thing or two about marketing, you’ve surely heard the phrase “incremental sales.”
But how much do you know about how to measure them or why they’re important to your bottom line?
Today we’re answering those questions and more.
What Are Incremental Sales?
BusinessDictionary.com defines incremental sales as the number of units sold through a sales promotion offer in excess of the estimated number that would have been sold without it.
Simple enough, right?
If I sell ten products every day at full price, then run a promo and sell eleven products, then that one extra product is an incremental sale. Isn’t it?
Actually, there’s more to it than that.
Incremental sales refer to units sold through a specific marketing campaign. These campaigns can be in the form of affiliate marketing, influencer marketing, social media ads, and other channels.
For it to be an incremental sale, someone outside the company (not the company itself) has to drive the lead that results in that purchase. That sale could not have been made without the push from that partner, affiliate, or social media channel.
Incremental sales occur through different marketing activities. Some come through PPC ads. Some are generated through content or videos that drive a customer to your product or service. Others are the result of an affiliate partner influencing the purchase or promoting it through a social media campaign.
How Do You Measure Incremental Sales?
Incremental sales are measured by acquiring new customers.
But companies differ on what “new” means. In some cases, a new customer is a brand new buyer who has never purchased from you before. In other cases, a new customer may be a prior customer who hasn’t made a purchase in six months or a year.
Some companies measure incremental sales using the “single source” rule. That means the sale must come directly through the affiliate, channel, or partner. In other words, if your affiliate influences a sale but the customer does not buy through the affiliate link, there’s no way to prove that it’s an incremental sale.
Understanding the Metrics
When measuring incrementality, it’s essential to understand metrics, such as:
- Participated revenue
- Assisted revenue
- First-touch percentage
- New customer percentage
- Quick conversion
Participated revenue is the amount of revenue from an affiliate where the partner touched the customer at some point in the process of the sale.
Assisted revenue is the amount of revenue that the partner participated in but was not ultimately awarded credit for.
Most affiliate programs pay their partners based on a last-touch structure.
But it’s worthwhile to look at the first-touch percentage as well. This is the percentage of the revenue where a specific partner was the first touchpoint of contact rather than the last touch. This metric will help you understand how that partner contributes to incremental sales, even if they’re not the last touchpoint.
The new customer percentage is another important metric, as it is one of the best ways to determine how you should value an affiliate or partner. As we said above, different companies define “new” in different ways. For example, a loyal customer who buys from you on a regular basis can still be influenced into purchasing through an affiliate.
One of the other most important metrics is the quick conversion rate. This lets you know when a sale was completed less than five minutes after the last referral click.
Longer conversion rates are always preferred. Quick conversion rates often indicate that a customer is searching for an online coupon code before buying. And, depending on how much commission you’re paying your partners, you could actually lose money on the sale.
For example, let’s say a customer is about to buy Software X.
They’re ready to make their purchase, but first, they spend a few seconds searching online for the phrase “Software X promo code.” They find that promo code (through a publisher site) and instantly use the code to make the purchase. This would be classified as a quick conversion.
However, that customer was going to make that purchase anyway.
So the company can lose money by having to pay for whatever discount code the publisher site offered. To add to that, the advertiser now has to pay that publisher for a commission on the sale.
Why It’s Important to Measure Incremental Sales
It’s clear that getting incremental sales will help you do more business.
But why is it so important to measure them?
Because it’s the best way to understand if your affiliates and marketing efforts are worth paying for.
Are you paying commission on sales that you would have gotten anyway? If so, you don’t need those affiliates.
It’s also key to maintaining your margins. Is it worth it to lower your margins by paying affiliates to get you those additional sales? Lower margins can lead to higher sales volume but can hurt your bottom line.
By accurately measuring incremental sales, you’ll also be better equipped to plan your ad spend.
If your efforts are working, you may want to increase your ad budget. If you’re not getting any more conversions than you would have anyway, decreasing your budget may be your best next move.
How KPIs Can Boost Incremental Sales
Analyzing the right KPIs (key performance indicators) is vital to understanding incremental sales.
When done the right way, KPI analysis can lead to better profitability, increase your business overall, and help it evolve.
When measuring incremental sales, track conversion rates for each KPI to determine which are getting the best results.
Incremental Sales: Best Practices
If you’re ready to dive deep into generating and measuring incremental sales, there are a few best practices to follow.
1. Determine KPIs and measure them.
Know which ones are hitting your targets and which ones aren’t.
2. Build stronger customer relationships.
Provide useful, high-quality content or engage with potential customers through media. By offering a better overall experience, you can build customer loyalty.
3. Test out different channels and platforms.
See which ones work best for your business. To do so, you’ll have to understand your metrics so you know which ones are resulting in more sales.
4. Make changes as need be.
Focus your attention on the channels that work best for you. Some businesses thrive on affiliate influencer marketing. Others have more success with social media ads or the support of partners.
When you think you have it all figured out, take a step back and consider this:
Trends can change in an instant.
Customer habits and behaviors change all the time, and so should your marketing efforts. What works for you this month may not work in two years, or next year, or even in six months.
Stay abreast of the marketing trends that are happening in your industry — and don’t be afraid to try a new technique. When it comes to building incremental sales, trial and error is often the way to go.
Making incremental sales through affiliates and partners is an impactful way to grow your business. But there’s a lot more to it than having your products promoted on blogs and in social media posts.
Create a strategy, test out different methods, and analyze, analyze, analyze.
If you don’t understand the metrics or know how to measure incrementality, it can adversely affect your margins and bring down your bottom line.
Ready to get started with a partner that accounts for all of this? Contact us today to see how Streamline can help you to boost your incremental sales.