What are Incremental Sales? Definition, Formula & Best Practices
Did my special offer result in new customers? Did our social media influencer strategy generate more revenue than normal? Did our target audience respond well to this new approach to marketing?
Every salesperson and marketer asks questions like these, and they should. You need to know how effective your marketing is in achieving your goals. Incremental sales are important because they can help organizations evaluate the effectiveness of their marketing campaigns and whether they resulted in customers taking the actions you wanted.
To do this, you must understand your sales benchmarks, define parameters to measure accurately, and create targeted marketing strategies for measurement.
We all want to find the most effective strategies that help keep your sales pipeline full, create more conversions, and close deals faster. With the right approach to measuring incremental sales, you can do exactly that by determining the optimal way to work.
In this article, we will define incremental sales, learn how to measure them, and review the best practices for controlling variables. We’ll also provide the incremental sales formula so you can calculate it yourself.
What is Incremental Sales?
Incremental sales are those that go above your baseline measures during the period you are tracking. Generally, incremental sales is a closely followed key performance indicator (KPI) in many marketing campaigns, providing a way to evaluate success and any impact on new customer acquisition.
For example, think of an eCommerce retailer that offers a limited-time sales promotion. Their promotional campaign includes pay-per-click (PPC), influencer, and affiliate marketing during a defined period. To gauge effectiveness, the retailer must monitor their sales data and success metrics during that time period, then calculate the difference between what they’d normally sell vs. what was sold due to the increased marketing efforts. This enables the retailer to see whether the marketing activity increased their conversion rate and drove sales.
Many advertisers will do incrementality testing to try different combinations of discounts or marketing messages to find the most effective marketing strategy. This usually involves running tests or changing your marketing focus from the norm for a period to see if it makes a measurable difference.
While you want to retain your current customers, growth for any sales organization requires the ability to attract new customers. Since there is always some natural attrition, even high-performing companies need a steady influx of incremental sales and new customers to be successful.
Incremental Sales Formula
Now that you have a basic definition of incremental sales, let’s look at the incremental sales formula. Using a template, you can easily calculate incremental sales:
Total Sales – Baseline Sales = Incremental Sales
Total sales would be the amount of revenue you generate for a specific time period. Your baseline sales would be determined by the amount you would normally sell during the same period if you were not doing a targeted marketing approach or focused sales event (FSE).
Incremental Sales Example
Let’s put it in perspective. Say a SaaS software company offers a limited-time discount on its subscriptions for a month in addition to its regular marketing and advertising. In a normal month, they sell $25,000 worth of new services (the baseline). However, during the additional campaign, they sell $40,000 (total sales). The incremental sales formula would be:
$40,000 - $25,000 = $15,000
So, incremental sales, in this case, would be $15,000.
This is just one of the key sales metrics you’ll want to measure. While the incremental sales formula calculated the increased sales and effectiveness of a marketing campaign, you still don’t know its ROI. For example, if your ad spend was an additional $50,000 on a marketing blitz that only generated $15,000, it would not be a good ROI for your marketing investment even though you generate more sales.
There are all sorts of sales analytics and sales KPIs you should be tracking that go well beyond incremental sales to help you plan your sales and marketing strategy. You will want to evaluate your sales funnel conversion rate during this period to see if it varies from the norm.
How to Measure Incremental Sales
To accurately understand incremental sales, it’s essential to first understand the baseline. If you’re not careful, your results can be skewed.
While you can measure against any period, such as quarter or month, many sales leaders like to compare year-over-year sales to account for seasonality. To get a true baseline, you have to ensure that you didn’t run specific promotions during the previous time period which you are comparing.
You’ll also want to make sure you have defined what counts. You may not want to count renewals from existing customers. New customers might be defined as someone that has never done business with your company or has not made any purchases within the past year. There’s no right or wrong here, but you will want to make sure you have a consistent definition before you begin to measure.
One more thing to consider is measuring with a specific source for attribution. Marketers should always be A/B testing different marketing verbiage, omnichannel strategies, and landing pages, but you may want to put that on hold while you are measuring incremental revenue if you want to gauge the overall effect. For example, if you are doing influencer marketing during your measurement period, you might not want to also launch a new affiliate marketing initiative or change your usual marketing copy.
You can keep track of all of these sales figures with the right customer relationship management (CRM) platform. Sales professionals can track incremental sales during campaigns and adjust as necessary to optimize.
There’s really no limit to what you can test. For example, you might want to see the impact of offering a financial incentive to every sales team member that solicits a testimonial or referral and then assess the impact on sales.
A slightly different formula lets you get a bit more granular with your results. You can measure incrementality with the following formula:
(Test Conversion Rate – Control Conversion Rate) / (Test Conversion Rate) = Incrementality
In this case, you would set a control conversion rate that equates with your baseline revenue. In other words, what would your conversion rate be if you did nothing additional? Then, you can compare that to the test conversion rate from your additional marketing efforts.
For example, if your normal conversion rate is 8%, yet you converted 16% during your test period, your incrementality was a 50% increase.
(16% - 8%) / (16%) = 50%
This works well when you want to measure the impact of multi-source campaigns. You may want to test two different strategies, such as expanding PPC keywords and using social media channels, and segmenting sales by source. This can show the impact of each of your marketing channels as it translates into touchpoints and incremental sales volume. This can also help you track other pipeline and marketing metrics, such as click-through rate, number of sales, and conversion rate by channel. However, you also need tight controls and parameters on your marketing efforts to accurately track incrementality.
This doesn’t control for all variables though. Someone may decide to take you up on a coupon offer now as the result of your cumulative marketing efforts over time.
That’s why there are two other sales metrics you should track during any test period:
- New customer percentage
- Quick conversion rate
The new customer percentage helps you discover the average order value and the customer lifetime value (CLV) as it relates to a specific promotion.
The quick conversion rate measures the time it takes for a sale to complete after the last referral click. While you always want the sale, a quick conversion may be the result of someone searching for an online coupon code. This might be people that saw your offer and were ready to convert, but now you’re paying a commission to your affiliate partners. You’ll want to track quick conversions and measure them against commissions to assess the impact.
What Factors Impact Incremental Sales?
Besides a clear definition of terms, there are also several key factors you need to be aware of that can impact the volume of incremental sales:
- Internal communication: This requires alignment of sales and marketing teams to adequately control testing. For example, you may want to limit renewal incentives at the same time you are testing new customer campaigns if you are assessing total sales.
- Sales staff turnover: For accuracy, you want to keep your control groups as stable as possible. If a key salesperson or contact center superstar leaves during your test, it might also skew the results.
- Changes to products, services, or pipeline flow: Consistency is key, so you should be careful when measuring incremental sales for marketing campaigns during periods of change. However, you may very well want to test after making the changes.
- Competition: While you can’t control what your competitors do, it’s important to take note of any changes to their marketing activity. If they offer deep discounts at the same time you are testing, it can have an impact.
- External events: We’ve all seen over the past few years that external events (a pandemic, inflation, global conflict, or hurricane — just to name a few) can affect results.
These are just more reasons why it’s important to have a CRM platform to keep your internal team connected and manage your entire deal flow.
Best Practices for Improving Incremental Sales Success
When you are measuring your incremental sales, there are some best practices you should follow, including:
- Define your terms and determine your KPIs
- Test different channels and platforms for effectiveness
- Be aware of marketing trends and their impact on sales
- Take into consideration external factors that you can’t control when analyzing results
In business, things can change quickly. What’s popular today might not be tomorrow. Customer behaviors evolve constantly. This holds for your important metrics as well. What is essential today may be out of date tomorrow. As such, you should always be testing to find ways to optimize your marketing campaigns and incremental sales strategies.
Grow Incremental Sales with Close
Close offers customer relationship management (CRM) software that integrates phone, email, SMS/texting, and video calls within the platform. With advanced analytics and reporting, Close helps sales leaders manage teams and sales reps to scale revenue quickly.
Watch a 10-minute software demo and see how Close can help you grow incremental sales, or start a free trial today.