How To Extract Meaningful Insights From Your Econometrics Models (PART 1)
Econometric modelling is one of the most powerful tools available for marketing decision-making. But models alone don’t deliver value. The key lies in interpreting them effectively and translating findings into actionable strategies.
There’s a common misconception that data ‘speaks for itself’. In reality, even the most advanced model needs careful interpretation.
The value of any econometric study lies not just in the numbers it produces, but in how those numbers are contextualised and applied. Without this, there can be a disconnect between model outputs and actual marketing strategies — either because the results are overwhelming, or because they challenge long-held assumptions about which channels work best.
It’s crucial to take a step back, absorb the findings in stages, and avoid trying to implement everything at once.
Understanding Your Econometric Outputs
If the real value of Econometric modelling lies in knowing how to interpret results and apply them, what are they key concepts you’ll encounter and what do they really mean for your marketing decisions?
Base vs. Incremental Sales
One of the most fundamental outputs is the split between ‘base’ sales (those you’d likely achieve without marketing) and ‘incremental’ sales, which are directly driven by your marketing activity. This distinction helps you see whether your marketing is truly generating growth. If incremental sales are low, it may indicate a need to reassess your creative strategy, targeting, or channel mix.
Marginal Effects
This refers to the additional impact you can achieve by increasing spend in a specific channel. Marginal effects are crucial for budget allocation, as they highlight where extra investment will have the greatest payoff. If your model shows strong marginal effects in digital, for example, it may suggest shifting more of your budget in that direction.
ROI (Return on Investment)
ROI measures the additional return generated from your marketing activity, often broken down by channel or campaign. This allows you to clearly see which activities are delivering the strongest returns.
However, it’s important to balance this with longer-term objectives. Some channels may deliver lower short-term ROI but play a vital role in future growth or brand-building.
Adstock & Diminishing Returns
These two concepts often cause confusion but are key to understanding media efficiency.
Adstock refers to the ‘memory’ of media (how long its impact lasts after a campaign runs).
Diminishing returns reflect the point at which spending more leads to smaller gains.
Together, they can help fine-tune how you phase your campaigns, and whether a ‘burst’ or ‘always-on’ approach will deliver the best results. For example, if your Adstock is high, you may not need to advertise continuously to maintain your presence in consumers’ minds.
Not every statistically significant result is worth acting on. It’s essential to focus on practical business value and those insights that will genuinely influence your marketing strategy or bottom line.
By understanding these outputs in context, marketers can begin to spot opportunities, rebalance their channel mix, and optimise spend in ways that align with both short-term goals and long-term growth.
Now we’ve explained some of the key concepts, Part 2 explores how to take those findings and turn them into confident marketing decisions, from planning campaigns and allocating budget to communicating with stakeholders and aligning teams.
In the meantime, if you’d like to explore the basics of econometric modelling and how it can support better marketing decisions, download our free eBook: The Guide to Econometric Modelling for Modern Marketers. Or get in touch – we’re always happy to talk data.
