Incremental Revenue refers to the additional earnings your business generates as a result of increased sales. It is a measurement of the additional gross revenue produced by a particular action, campaign, or strategy. Incremental Revenue helps businesses understand the financial impact, the returns on their investments, and the effectiveness of any changes to their sales and marketing strategies.
Incremental Revenue = Total Revenue with the Marketing Campaign or Change - Total Revenue without the Marketing Campaign or Change
For instance, if your ecommerce store made $10,000 in sales before a marketing campaign and $15,000 after the campaign, your Incremental Revenue would be ($15,000-$10,000)/$10,000= 50%. This indicates a 50% increase in revenue due to the marketing campaign.
Incremental Revenue is important because it is a clear indicator of the profitability and effectiveness of different strategies in your ecommerce business. This could include launching new products, introducing a new marketing campaign, or implementing a customer loyalty program. Understanding Incremental Revenue not only shows if these strategies are working but also quantifies just how impactful these changes are.
Several factors can affect Incremental Revenue, including changes in product prices, demand elasticity, competition, changes in customer behavior, and the effectiveness of marketing activities.
Optimizing product pricing, improving conversion rates, investing in customer retention, and upselling or cross-selling strategies can significantly improve Incremental Revenue.
Incremental Revenue is correlated with several other ecommerce metrics. For instance, an increase in average order value (AOV), conversion rate, or customer retention rate can directly lead to a rise in Incremental Revenue. Conversely, a high cart abandonment rate or bounce rate can negatively impact Incremental Revenue.