Want to know if your ad campaigns are truly driving extra revenue? Incremental ROAS (iROAS) is the key metric that helps you measure the additional revenue directly generated by your marketing efforts. Unlike traditional ROAS, which looks at total revenue, iROAS focuses only on the revenue that wouldn’t exist without your ads.
Here’s how you calculate iROAS:
- Set up control and test groups: Compare a group exposed to ads (test) with one not exposed (control).
- Measure incremental revenue: Subtract the control group’s revenue from the test group’s revenue.
- Apply the iROAS formula: Incremental ROAS = (Test Group Revenue – Control Group Revenue) / Ad Spend.
For example:
- Test Group Revenue: $25,000
- Control Group Revenue: $15,000
- Ad Spend: $4,000
iROAS = ($25,000 – $15,000) / $4,000 = 2.5
This means every $1 spent on ads brings $2.50 in extra revenue.
Why it matters:
- Focus on new revenue: Understand which campaigns drive actual growth.
- Allocate budgets smarter: Invest in channels with the highest incremental returns.
- Track true impact: Use tools like A/B testing or geo-lift studies for precise measurement.
Key takeaway: iROAS helps you refine your marketing strategy by showing which campaigns truly work. Use clean data, control groups, and advanced tools like media mix modeling or multi-touch attribution to ensure accurate results.
All ROAS Is Not The Same (Incremental ROAS)
Core Elements for Calculating Incremental ROAS
To calculate incremental ROAS (iROAS) accurately, businesses need to focus on three key components. These elements work together to provide clarity and precision in your analysis.
Measuring Extra Revenue
To measure extra revenue, you need to track sales performance across different audience segments. The aim is to identify the additional revenue directly tied to your advertising efforts. Controlled experiments, like A/B tests or geo-lift studies, are commonly used for this purpose.
Key factors to track include:
- Baseline organic revenue
- Revenue from ad-exposed audiences
- Consistent timing
- Seasonal variations
For example, an A/B test can help pinpoint the incremental revenue generated by your campaigns, providing a clear picture of your advertising’s impact.
Setting Up Control Groups
Control groups are crucial for accurate iROAS measurement. Here’s what you need to establish effective control groups:
| Factor | Requirement |
|---|---|
| Group Size | Large enough for statistical significance |
| Audience Match | Similar demographics and behaviors as the test group |
| Isolation | No exposure to the tested campaigns |
| Time Period | Matches the test group’s campaign duration |
By ensuring a clear separation between control and test groups, you avoid data contamination and ensure both groups accurately represent your target audience.
Once your control groups are in place, the next step is to monitor your ad costs.
Tracking Ad Costs
Tracking ad costs precisely is critical for iROAS calculations. This involves keeping a detailed record of:
- Direct media costs
- All advertising-related expenses
- Implementation costs
Calculating Incremental ROAS: Step-by-Step
To measure the additional revenue your campaign generates, focus on extra revenue, control groups, and ad cost tracking. Here’s how to break it down:
Step 1: Calculate Extra Revenue
Start by comparing the revenue from your test group (ad-exposed) with the control group (non-exposed):
- Determine the revenue for the ad-exposed group.
- Find the baseline revenue from the control group.
- Subtract the control group revenue from the test group revenue to get the extra revenue.
Tools like Rockerbox can simplify this process by tracking revenue across different segments using controlled experiments.
Once you have your extra revenue, you can connect it to your ad spend using the iROAS formula.
Step 2: Use the iROAS Formula
The formula for Incremental ROAS is simple:
Incremental ROAS = Incremental Revenue / Ad Spend
Here’s an example:
| Component | Amount |
|---|---|
| Test Group Revenue | $25,000 |
| Control Group Revenue | $15,000 |
| Ad Spend | $4,000 |
| Incremental Revenue | $10,000 |
| Incremental ROAS | 2.5 |
In this example, every dollar spent on advertising brings in an extra $2.50 in revenue. This approach gives a more accurate view of marketing effectiveness compared to standard ROAS.
Tools like SegmentStream‘s AI-based attribution can further refine this analysis by evaluating each website visit for its likelihood to convert. This ensures you’re accounting for the true impact of your campaigns.
"The primary purpose of calculating Incremental ROAS is to measure the additional revenue generated by a marketing campaign that would not have occurred without it. Unlike standard ROAS, which calculates the overall revenue generated from advertising, Incremental ROAS isolates the revenue directly attributed to the marketing efforts, providing a clearer picture of the true return on marketing investments."
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Measurement Tools and Methods
To improve the accuracy of iROAS calculations, advanced tools like media mix modeling, multi-touch attribution, and controlled experiments come into play. These methods help marketers better understand how their efforts drive results.
Media Mix Modeling Basics
Media Mix Modeling (MMM) uses statistical analysis to determine how each marketing channel contributes to revenue. It isolates the impact of individual channels while also accounting for their combined effects over time. This method is particularly useful for identifying long-term trends and channel interactions. Platforms like SegmentStream enhance MMM by assigning weights to touchpoints based on their likelihood to drive conversions. From here, we move to multi-touch attribution, which offers a closer look at customer interactions.
Multi-Touch Attribution Methods
Multi-touch attribution (MTA) assigns credit to various touchpoints throughout the customer journey. Some commonly used models include:
- Last-Click: Ideal for direct-response campaigns, giving full credit to the last interaction.
- First-Click: Focuses on the first interaction that introduces the customer to the brand.
- Linear: Distributes credit equally across all interactions.
- Data-Driven: Relies on AI to provide more precise attribution based on patterns and data.
Testing and Experiments
Controlled experiments like A/B Testing and Geo-Lift Testing are key to validating these measurement methods.
- A/B Testing involves dividing an audience into test and control groups to compare outcomes.
- Geo-Lift Testing evaluates performance by comparing results across different geographic regions.
Growth-onomics combines MMM and MTA approaches to deliver in-depth marketing performance insights, ensuring clients gain a clearer picture of their efforts across all channels.
Tips and Best Practices
Getting accurate iROAS measurements requires precise data and careful execution. Here’s how to make your iROAS calculations work harder for you.
Data Accuracy
Reliable iROAS starts with clean, consistent data. Make sure you’re tracking everything the same way across all test groups and using identical data sources and metrics for both test and control groups.
Here’s what a strong tracking setup should include:
- Clean data collection: Use UTM parameters and set up conversion tracking properly.
- Consistency in measurement: Compare test and control groups over the same time periods.
- Regular validation: Double-check your data across different analytics tools.
Platforms like SegmentStream use AI-driven attribution models to help businesses fine-tune campaigns while ensuring data stays accurate.
Using Results for Decisions
Turn iROAS insights into actionable strategies that drive results:
| Focus Area | How to Apply It | What You’ll Gain |
|---|---|---|
| Budget Allocation | Increase spending on campaigns with higher iROAS | Better use of your marketing budget |
| Channel Strategy | Focus on channels delivering strong results | Smarter resource distribution |
| Campaign Optimization | Adjust targeting based on revenue data | Stronger audience connections |
While internal analysis is essential, working with experts can take your insights to the next level.
Working with Experts
Collaborating with experienced professionals can sharpen your iROAS measurement and application. Their expertise helps ensure precision and actionable results.
Experts can assist with:
- Test Design: Setting up experiments that clearly show incremental impact.
- Data Integration: Combining data from different sources for better attribution.
- Strategic Execution: Turning iROAS findings into marketing actions.
For example, Rockerbox combines MMM and MTA models to improve testing and budget planning.
"Using AI-driven attribution models like SegmentStream can help businesses continuously optimize their campaigns and improve their return on ad spend."
Wrapping Up
Key Takeaways
Measuring iROAS effectively involves a clear, structured approach to understand the true impact of your campaigns. By applying proven strategies and the right tools, you can pinpoint which efforts are driving revenue growth.
Here are the main points to remember:
- Use test and control groups to attribute revenue accurately.
- Apply the iROAS formula: (Test Group Revenue – Control Group Revenue) / Ad Spend.
- Utilize advanced measurement tools to ensure precise attribution.
- Maintain consistent, clean data tracking for reliable insights.
Next Steps
Turn these insights into actionable steps to improve your marketing efforts:
| Phase | Action Items | Outcome |
|---|---|---|
| Setup | Define metrics and create control groups | Establish a clear measurement baseline |
| Execution | Implement tracking tools and attribution models | Build a reliable data collection system |
| Evaluation | Analyze results using the iROAS formula | Gain insights into campaign performance |
| Adjustment | Reallocate budget based on incremental returns | Boost overall marketing ROI |
If you’re new to iROAS, consider partnering with experts like Growth-onomics. They can help you design controlled experiments, integrate data sources, and turn insights into actionable strategies.
"Incremental ROAS insights can be used to isolate the revenue directly tied to specific marketing tactics, allowing businesses to refine their approach and ensure that they are only investing in strategies that deliver real growth."
Keep refining your strategy for consistent, data-driven improvements. Regularly review your iROAS metrics to make the most of your marketing budget.
