Small Numbers, Big Returns (or how to increase the value of your email program by $1 million!)

I often talk to  clients about the financial value of their email programs. Sometimes this number is clearly defined but often it’s fuzzy at best, and non-existent at worst. This shouldn’t be surprising. In the DMA’s excellent “National Client Email Report (February 2014)40% of respondents said they were not able to calculate the revenue generated by their email marketing activities.

Peter Drucker coined it years ago – ““If you can't measure it, you can't manage it.” At Return Path, we spend much of our professional lives helping clients improve the performance of their email programs. In return, they need to be certain the money they are investing in our products and services will yield positive returns. To help achieve this, we work with them to establish the financial benchmarks that put a hard $ value against the performance uplifts we deliver.

Let’s consider some facts:

  • 68% of companies rate email as ‘excellent’ or ‘good’ for ROI, more than any other marketing channel, including SEO 1
  • On average, companies spend 16% of marketing budget on email, while attributing 23% of total sales to the channel, up from 18% in 2013 1
  • Estimated average return from email is approximately $28.50 generated for every $1 spent 2
  • Average revenue per email delivered is $0.10, where this metric is defined as average amount earned for each delivered email [total order/ (sent - bounced)] 3

There are many different ways of valuing an email program. It could be a straight-line function of attributable revenue generated. It could also reflect marketing spend on email, cost of acquisition (CoA), customer lifetime value, or permutations thereof. CFOs will also be interested in key financial ratios: Marketing spend as % of CoA; Customer Lifetime Value as % of CoA; Time to Payback of CoA; and % of Customers who are Marketing Originated/Influenced. These values also vary by brand, sector, & country.

Let’s keep it simple and assume an email address has an average annual value of $5, based on the $0.10 revenue per email number (above), multiplied through by the B2C average of 4.3 contacts per month (once per week). By this measure, a typical email program with a list size of 1M members is worth slightly more than $5M per annum.

Often, in evaluating the positive impact Return Path Certification delivers for email programs, we consider the variance in Inbox Placement Rate (IPR). Using the same example, a 1% improvement in IPR would be worth $50K pa, assuming a straight-line relationship between delivery and conversion. In reality “program members average a 27% lift in overall inbox delivery rates” – so we’re talking big money here!

Recently, we’ve also considered the impact of more marginal gains – or “the law of small numbers!” Averaging the metrics from recent ESP benchmark reports 4, we can infer that a typical email broadcast loses addresses at the following rates:

  • Bounces: ± 0.3% 5
  • Opt-outs: ± 0.125% 5
  • Complaints: ± 0.075% 6

That gives a disaffection index of 0.5% per broadcast. Using the same scenario described above, it extrapolates to list churn of 260,000 addresses p.a. (over a quarter of the base) – that’s a $1.3M loss.

This is something the “send more email” advocates ignore, because list churn increases with broadcast frequency. Increasing activity will generate more total responses, but this is subject to diminishing returns, while disaffection increases exponentially. Senders need to be confident the short-term uplift in revenue is not offset by long-term erosion in list value. It also illustrates a compelling argument for spending more on recruiting higher-quality addresses that are less likely to churn in the first place.

As both a Return Path client (previously) and consultant (currently) I’ve seen the positive role Certification can play in lowering the disaffection index. Bounce activity typically reduces because of improved sender reputation, while opt-out and complaint activity also lessens because of increased levels of engagement. Reduced disaffection of 33% is not uncommon, and represents a potential benefit of $300K to $400K p.a. in our example – simply by evaluating the big impact of the small numbers.  

Knowing the value of your email program should be a mandatory part of your management reporting. It validates having an email program in the first place (and therefore your job!). It means that when you are requesting additional investment, you can present a compelling ROI justification. And when you generate a 28:1 return – and, most importantly, can prove it – it means you look awesome in your organisation, and will probably get promoted.   

Comments & References:

  1. Econsultancy’s “Email Marketing Industry Census 2014” report
  2. DMA(UK)’s most recent “National Client Email Report”, February 2014
  3. Experian Marketing Services’ “Quarterly Email Benchmark Report”, Q4 2013
  4. The data (where available) was sourced from recent benchmark reports published by Exact Target, Silverpop, Experian Marketing Services, Epsilon, and the Direct Marketing Association(UK).
  5. Note that some of these reports will require registration and/or paid subscription before they can be downloaded.
  6. The Silverpop report considers quartiles, not just averages, which is important because these metrics bias toward the lowest quartile. I have therefore adjusted them to reflect the same mean:median ratios quoted in the Silverpop report. Also, bounces are not suppressed after the first event. The DMA report states that the average is 2.4 events for hard bounces and 5.2 events for soft bounces, so I have further weighted this metric to reflect this treatment. This means that the metrics that I am quoting are highly conservative, and many programs will be generating higher average bounce and opt-out rates.
  7. Taken from global subscriber panel data in Return Path’s Email Intelligence Suite.