Exploring Incremental Return

As brands continually offer more and more ways for consumers to engage with them, the opportunities to develop more complex marketing strategies also increases.  This is exciting for a marketer as the additional touch points bring with them the potential for better response rates, increased brand awareness, and ultimately, higher lifetime value from their customers.  Many case studies tout the impressive overall return on investment of these robust marketing plans.  These metrics look great at face value, but how can one be certain that the incremental investments are driving incremental return?

Let’s explore the concept of incremental return by starting with a baseline marketing investment of $100 that drives revenue of $1,000.  Perhaps this is a simple marketing strategy that only involves one tactic.  As additional marketing tactics are explored, the investments will continue to increase, and hopefully so will the revenue.  For our example, let’s imagine that over time the marketing strategy has grown to include three tactics with a total investment of $300 driving revenue of $2,100.  Our case study would show an increase in revenue of over 2x and a whopping 7 to 1 return on ad spend.  This sounds great, but how do we know if our additional investments are truly paying for themselves?  This is where measuring incremental return becomes critical.

When we only had one marketing tactic, our return on ad spend was 10 to 1.  When we added in marketing tactic two, let’s imagine that ratio was maintained and our ad spend increased to $200 with revenue of $2,000.  Marketing tactic three brought us to the $300 investment and $2,100 revenue mentioned earlier.  With this in mind, marketing tactic two resulted in an incremental investment of $100, incremental revenue of $1,000, and an incremental return of 10 to 1.  This is right in line with marketing tactic one.  However, marketing tactic three resulted in an incremental investment of $100, incremental revenue of $100, and an incremental return of only 1 to 1.  Not nearly as impressive as the 7 to 1 touted in our case study.

As marketers explore more complex marketing plans, you can see how important it is to do so with a focus on the incremental return of those investments.  This is especially important as additional tactics overlap with each other and result in additional messages to the same customers.  A well structured testing plan can help provide visibility into these incremental returns and ensure additional investments are truly adding value to your organization.