How to Use Marketing Mix Modeling to Forecast Baseline Sales Effectively

In the dynamic field of marketing, uncovering your brand’s baseline sales is akin to finding a treasure map. It’s the key to understanding the essence of your sales—the foundational level of demand for your product or service when all marketing efforts are paused.

This insight is central to Marketing Mix Modeling (MMM), a strategic approach that empowers brands to allocate their marketing budget efficiently, enhancing overall impact.

Why Understanding Baseline Sales is Crucial for Strategic Marketing

Consider a scenario where all your marketing initiatives are suddenly halted. What impact does this have on your sales? This question is pivotal, particularly when leveraging marketing mix modeling. MMM acts as a compass, guiding you in how each marketing channel contributes to your revenue and indicating where to invest for optimal returns.

However, it’s important to note that sales do occur naturally, without any marketing stimuli. These sales represent your brand’s “true organic” sales level—your baseline. Recognizing this baseline is crucial as it illuminates the effectiveness of your marketing strategies, highlighting the incremental value they add to the inherent demand for your product or service.

Simplifying Baseline Sales with Relatable Examples

To demystify the concept, let’s consider an everyday scenario. Suppose there’s an upcoming sale on your preferred brand of tea. Likely, you’d postpone your purchase until the sale, a behavior well-understood in the Consumer Packaged Goods (CPG) industry. Sales trends typically decline before a promotion, surge during it, and fall again afterward. Identifying these patterns is key to accurately forecasting demand, underscoring the significance of distinguishing true baseline sales from promotional spikes.

Demystifying Marketing Mix Modeling with Practical Insights

Marketing mix modeling posits that investments in various channels influence outcomes like sales, app installations, or user engagement. Yet, even without active marketing, these metrics don’t plummet to zero due to ongoing activities, including short-term carryover effects captured in MMM. After these effects subside, a level of activity remains, which can be attributed to brand equity, market share, or consumer loyalty. For instance, a well-loved tea brand may continue to see sales due to its strong brand presence or simply because consumers prefer it, irrespective of marketing efforts.

The Challenge of Accurately Estimating Baseline Sales

Identifying the true baseline sales figure presents challenges. Many marketing models oversimplify by treating baseline sales as a constant, failing to capture the nuanced reality. Some suggest completely halting marketing as an experiment, but this approach risks lost sales and does not accurately reflect baseline sales over time.

Our solution involves employing a general linear state-space model with an intercept to forecast the baseline within MMM. While this may sound daunting, it’s a practical approach for dynamic systems where numerous factors interact to produce observable outcomes.

In our models, we incorporate elements like marketing expenditure, seasonality, and channel interactions. This enables the model’s intercept to accurately capture the genuine baseline effect on the targeted outcome.

Discover the Impact of Your Marketing Channels

Are you prepared to uncover the influence of your marketing efforts on sales and anticipate the results of future strategies? Book a demo with us, and we’ll provide you with actionable insights from your data.

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