By Todd Crawford on May 20, 2015
The term “incrementality” has been coming up more and more in discussions about how to evaluate the affiliate marketing channel and individual affiliate partnerships. Advertisers want to know which affiliates are driving these elusive incremental sales so they can better optimize partnerships and the channel as a whole.
Incrementality isn’t easy to define. In my discussions, it seems to have different meanings depending on who you are talking to. But if I had to come up with one definition that most could agree on, it would be the sales revenue derived from a marketing channel (or in this case an affiliate) that you would not have received if it weren’t for that channel or partner’s sole contribution. Rarely are 100% of any partner’s sales incremental. The key is determining what percentage is incremental and what that means for your business.
For most affiliate managers, incrementality is easier to discuss than to measure. The primary reason most advertisers cannot measure incrementality is because they are only getting affiliate-centric data from their affiliate management provider. In order to determine actual incrementality, however, marketers need to see all marketing channels as well as all affiliate partners.
Let’s take a look at how we can measure incremental revenues by affiliate. In my example below, we will look at two affiliates’ data.
Table 1 above shows that these two affiliates are each driving the same incremental revenue. For Affiliate A, 9.5% of their sales were “unique,” meaning those consumers only interacted with that affiliate (with no other affiliate, paid media or marketing channels were involved). Likewise, Affiliate B had 27.1% unique conversions, resulting in the exact same incrementality contribution of $93,840.
With this new perspective, does your value of these two partners change? How would you use this information to optimize these partnerships? What else can we learn about the sales these affiliates drove?
Let’s look a little deeper at this incrementality by breaking out “new” versus “returning” customers and see if we can find even more value.
In Table 2, we discover that these two partners also contributed $56,754 in new customer revenues. Remember that to be considered “incremental,” the sales have to be “unique” to the affiliate, meaning no other paid media (SEM, email, social, display, etc.) or other affiliates influenced or contributed to the conversion.
Interestingly, although both partners drove equal incremental revenue (the $93,840 each contributed in the first example), Affiliate B drove $30,078 more new customer revenues than Affiliate A.
OK, let’s take this to the ultimate next level and include profit margin by product. In the example below I am using a blended profit margin of 20%.
In Table 3, we can see that each affiliate contributed $18,768 in margin to the company that we would have never seen if it weren’t for these partners.
Now you have three new perspectives on incrementality that typical affiliate reporting doesn’t provide you. First, you can see the incremental or unique revenues by affiliate. Second, you can see the unique revenues broken out by new versus returning customers. And finally you can see the profitability for both total and unique revenues.
If you could unlock these insights, how would you leverage this data? Would you value these partners differently given this new information? Would you pay them more now that you can see the new customers and unique revenues? Would your company’s perspective on the affiliate channel change if you were able to break out the revenues using these metrics? What other metrics would you want to see to help you manage your affiliate channel?
These metrics can help you better determine the value and contribution of the affiliate channel and leverage each of your partnerships to drive incremental revenues and more new customers. Furthermore, using these metrics, you can analyse how the affiliate channel compares to other channels like paid search, social, display, and email.
As I said in the beginning, it is easier to talk about this data than it is to actually measure it. How can you get access to the invaluable data? Well, that’s where Impact Radius comes in. We would love to help you leverage all of this data and more. Contact us and we’ll show you how it can be done.