What campaign profitability looks like after the discount
The short answer
A campaign can lift revenue and still lose money once the discount and the sales that would have happened anyway are counted. Campaign profitability is the incremental gross margin the campaign created, after discount, minus the discount given to customers who would have bought regardless, minus media and production cost. Measure incremental sales against a holdout.
Discount campaign profitability, worked through
Why it matters
Revenue reports reward campaigns that discount heavily, because every discounted sale counts as a win. Measuring margin after discount shows which campaigns grew profit and which bought revenue at a loss, so budget can move toward the ones that pay.
The question to ask
Copy this into Lexi as written.
How to work it out
1. Measure incrementality. Compare purchases from customers who received the campaign with a holdout group that did not, to find the sales it added.
2. Cost the discount. Total the discount given on all campaign sales, including those that would have happened without it.
3. Net it out. Take incremental gross margin after discount, then subtract the discount on baseline sales and the campaign's media and production cost.
What the answer looks like
Illustrative output on sample data
Illustrative example: how Lexi answers this for a homewares retailer. It measures each campaign's incremental revenue against a holdout, then subtracts discount and campaign cost, in millions of dollars.
- 25% off sitewide: 1.20 revenue, 0.70 incremental. Margin 0.21, discount on baseline sales 0.17, cost 0.08. Profit -0.04.
- Bedding launch, no discount: 0.42 revenue, 0.25 incremental. Margin 0.14, cost 0.05. Profit 0.09.
What the data shows
The sitewide sale drove almost three times the revenue but lost about $40,000. The launch made about $90,000.
What it means
Most sitewide sale buyers were existing customers who had bought in the previous 60 days.
What to do
Run more full-price launches and limit sitewide sales to clearance needs.
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Frequently asked questions
How do you measure incrementality for a retail campaign?
Hold back a random group of customers who would otherwise receive the campaign, then compare their purchases with the group that received it over the same period. The difference in revenue and margin is what the campaign added. The holdout must be random and large enough for the gap to be stable.
Why does revenue overstate a discount campaign's success?
Campaign revenue includes purchases customers would have made anyway, now at a lower price. Those sales cost margin without adding anything, yet they count toward the revenue total. Only the incremental sales, measured against a holdout, show what the campaign created, and their margin has to cover the discount on everything else.
Which costs belong in marketing campaign margin?
Include the discount on every campaign sale, media spend, creative and production, and any extra fulfillment or returns cost the campaign drives. Leave out costs you would carry anyway, such as platform fees on a list you already own. Use gross margin on incremental sales, after discount, as the starting point.