Variant Metrics: Variant Incremental Revenue

As a variant metric, Incremental Revenue is the extra revenue generated by the variant. The calculation of this metric is based on the comparison between the performance of the control group and that of the variant.

Incremental revenue is one of the important 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 visit an electronics store. A sales associate accompanies you, and you end up purchasing a smart phone and a smart watch while you were planning to purchase only a smart phone. The sales associate does not help the other customer, and they purchase only the smart phone and leave the store. The extra smart watch 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 takes the traffic allocation of the variants into account, and provides a more accurate representation of the “additional” revenue. 

Let’s say you have a campaign with 80/20 allocation. It is an expected result for the variant with 80% allocation to 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, control group revenue is projected as if it had the same percentage of allocation and received 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, and the conversion rate and average order value of the control group. When you place them in the formula, it gives out 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 the word “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 example cases.