CPG brands spend as much as 20% of their revenue on trade promotions, but nearly 6 in 10 promotions don’t break even, meaning most brands lose money on their investment at the point of sale. So how do you know whether your trade spending is worth it? Data-driven sales and retail execution teams track incremental sales lift to measure the effect their product promotions have on sales.
How to Calculate Incremental Sales Lift
The incremental sales lift formula is relatively simple, however, there are a couple different values you can plug in depending on how your brand measures sales success. For the purpose of this article, we will be discussing sales lift in terms of actual monetary sales, but you can also use sales volume. The formula is below, along with a calculator to make it even easier to figure out:
Actual Sales - Baseline Sales = Incremental Sales Lift
In this formula, your actual sales are the dollar amount of sales generated during a promotion. Your baseline sales are the estimated dollar amount of sales for that given time period if the promotion had not taken place.
There are a few different ways to calculate baseline sales:
- Pre-post analysis: This involves looking at sales for a set time period pre-promotion and comparing them to the sales of a similar time period post-promotion.
- Last year’s sales average: This method looks at sales for the same time period of the previous year and compares it to the current year with the promotion.
- Prediction of sales: This method requires brands to make a prediction of sales for a given period based on other factors (i.e. previous sales, last year’s sales) and compare it with the actual sales for that same time period.
How you calculate your baseline sales also depends on having a data-driven strategy; The better your data tracking, the more accurate your baseline sales calculation will be, which makes for a more accurate sales lift calculation. To learn more about becoming a data-focused team, check out this eBook that discusses the three types of retail data and how CPG brands can utilize these metrics to empower their teams in the field.
Why Teams Should Care About Incremental Sales Lift
What sets top brands apart from their competition is that they commit to using data to drive their decision making. Put simply, before taking any action in the field, they analyze performance data to identify opportunities and execute on the highest impact activities. This data-backed decision making isn’t just a smarter way to work, it has a real impact on a company’s bottom line. Brands can lose up to 25% of potential sales due to poor retail execution.There are three types of data that data-driven brands use to fuel a cycle of continuous improvement in the field. They are:
- Observational Data -- what in-store conditions have an effect on sales performance?
- Activity Data -- what actions does your team take in the field to drive sales?
- Sales Data -- what is the volume of product you’re moving off the shelf?
Incremental sales lift falls under the Sales Data category. It is a measurement of the success of a promotion that allows brands to calculate the effect of a marketing activity in dollars by comparing would-be sales without a promotion to actual sales with a promotion. By tracking this metric, brands are able to hone in on which in-store activities are most effective so they can focus efforts where they will have the most impact.
