As a variant metric, Incremental Revenue is the extra revenue generated by the variant. The calculation of this metric is based on comparing the performance of the control group and that of the variant.
Incremental revenue is one of the essential indicators to determine if a variant is a winner and quantify the contribution of Insider. It measures the impact of a campaign on revenue and highlights the extra income generated by one group compared to the control group.
For example, imagine you and another customer visiting an electronics store. A sales associate accompanies you, and you end up purchasing a smartphone and a smartwatch, while you were planning to purchase only a smartphone. The sales associate does not help other customers; they purchase only the smartphone and leave the store. The extra smartwatch you purchase is an example of incremental revenue.
Incremental revenue is not the exact difference between the revenue values of the variant and control group. The calculation considers the variants' traffic allocation and provides a more accurate representation of the “additional” revenue.
Let’s say you have a campaign with an 80/20 allocation. It is expected that the variant with 80% allocation will bring in more revenue as it is exposed to a larger audience group, increasing chances of conversion. To make the value a more reliable representation of the “increment” generated while calculating the difference between revenues, the control group revenue is projected as if it had the same allocation percentage and received an equal amount of impressions.
Formula: Var(Rev) - ((Var (Imp) x CG (CR))x CG(AOV))
Below is a sample calculation of Incremental Revenue.
In the example above, you can see the impressions (Imp) and revenue (Rev) of the variant group, as well as the conversion rate and average order value of the control group. Placing them in the formula gives the Variant Incremental Revenue displayed in the table below.
Incremental Revenue = Var(Rev) - ((Var (Imp) x CG (CR))x CG(AOV))
Incremental Revenue = 68.999 - (8.091 x 0,038 x 128,39)
Incremental Revenue = 68.999 - 39.474
Incremental Revenue = 29.525
There is no such thing as “negative” incremental revenue. Incremental revenue is designed to showcase increases in values due to the nature and definition of “incremental”, which means to show a value if it is increasing. Negative values are not displayed on the panel. Instead, the incremental revenue is displayed as 0.
The following video explains how to calculate incremental revenue, and offers examples.