5 Steps in Measuring Real Revenue Uplift from Sales Promotion Campaigns

One of the challenges I often receive from my bosses at work is on how to prove revenue uplift from sales promotion campaigns. It gets more exciting when finance involves themselves since the uplift generated must closely match the ROMI (Return on Marketing Investment) forecast. But for the sake of discussion, I will share how I measure revenue uplift coming from sales promotion campaigns.

What's the Current Situation

Running a sales promotion campaign is often done for the purpose of stimulating sales. At the end of the day, business owners want to achieve additional revenues. However, how often does a business owner measure revenue lifts from the promotions they usually run.

Sales promotion campaigns and generated sales  can be correlated but is it actually the factor causing people to buy?

Correlation does not imply causation

How much of the total sales should have been added by the promotion versus the sales generated by the people who would have bought the item regardless of the promotion. What every business owner wants is to use its sales promotion budget to stimulate sales that will bring in additional revenues.

Understanding the Concept and Science of Revenue Lift Measurement

In order to successfully measure revenue uplift, the focus is to remove the potential revenue generated by customers who would pay full value for the product. Yes, people might have been enticed by the promotion (who would say no to a 50% off right?) however, there are also people who would have bought it even without the additional discount.

The idea is simple: Everyday, a store has a set of customers coming in to buy the things they need at the moment. Regardless of any promotion, these customers will pay full value. In effect, there is no point in incentivizing regular customers. They would have generated the same sales revenues you already forecasted on a daily basis.

However, sales promotion can either convert non-buyers to buyers OR push regular customers to increase their order size. Running a full blown sales promotion campaign would help do this. BUT, the way it will be measured is by removing the potential spend of a regular customer and measuring the remainder as the true revenue lift.

Makes sense?

How to Use It

Let's say you want to run a 50% off on all items during pay day. Let's call it Pay Day Sale.  But before you do a full blown campaign, you don't want your bosses to feel that the campaign will result to a revenue lift that would have been the same amount even if there was no promotion. What you want to achieve is to prove that your proposed sales promotion campaign will generate additional revenue on top of what is the expected sales for the day.

So the only way to find out, is to test your promotion and measure success prior to a full blown launch.

Step 1:

Identify your test and control group. Your test group will be the people who will be exposed to the promotion and the control group will be the people who will see the regular price.

Step 2:

Record your conversion rate per group. (How many customers bought over total customers who saw the product)

Example: Out of 100 viewers, 10 bought. - Conversion rate is 10% (10/100).

Step 3:

Identify Average Spend per customer. Do this by getting total spent divided by total buyers per group.

Example: Total gross sales - P100,000.
Total converted customers - 50.
Average Spend per customer - P2,000 (100,000/50)

Step 4:

Identify ideal spend per customer. Ideal because this is the potential sales revenue of the customers being observed WITHOUT the promotion.

• Get total targeted customers (test plus control group) 
• Multiply it to the conversion rate of your control group
• Multiply result to the average spend of the control group

If the entire group was exposed only to the regular priced items, will they spend more or less the total spent of the test group?

Summary

To recap, this tool is quite useful in forecasting revenue lifts from an upcoming promotion. This can be tweaked to measure lifts coming from new customers too. But I find it very useful in measuring real lifts from monthly promotional campaigns. This way, I have a more scientific approach in planning future promotions.

I hope this tool was able to help you in planning your own sales promotion campaigns and the associated revenue lifts.

Note: if the KPI is converting non-buyers to buyers, the sales promotion campaign will be measured differently - in terms of customer conversion rates and matching that with customer lifetime value.