The Art & Science of Proving Email ROI

Posted by Guy Hanson on

In my previous blog post on Email Benchmarks & Measurement Challenges, I presented a set of industry benchmarks that made a strong case for why email remains the most effective major direct channel. I also considered some of the measurement challenges that make it difficult for marketers to create similarly compelling illustrations of the value being generated by their email programs. Failure to do so has consequences, as one of the top three barriers to securing digital investment is the inability to prove ROI.1

I also talked about the importance of knowing metrics such as the average value of an email address. I find this interesting because every interaction has a value that can be mapped onto it, whereas the focus is normally on just the average order value. For example:

2015_08_12_18_19_21_20150812_measuring_email_effectiveness___roi_blog_part_ii_docx___microsoft_word-1

 

Using this approach means a marketer can focus on proving the value of a specific objective. For example, assume a list of 100,000 email addresses being sent to once a week, and the program owner wants to increase average open rates by 1%. That would generate another 900 opens per send, or 46,800 opens per year. The incremental value of the additional opens is $29,250 (46,800 * $0.625), so a $25,000 email optimization project to achieve this outcome would be ROI positive.

Senders can also take a similar approach to map values onto metrics such as bounces, complaints, and opt-outs. In this way, they can create ROI illustrations based on reducing these metrics through improved deliverability, and better insight into subscriber engagement.

Here are some examples of how this data can be used to create email ROI models.

Driving sales: Where program value is a straight-line function of sales generated, a tool such as Return Path’s ROI calculator can be used to provide a compelling visualization of the predicted uplift.

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In this example, we have used industry average benchmarks for each email metric, and then dialed up inbox placement rates (IPR) by 3%, open rates by 2%, and click-through rates by 1%. This deliberately conservative scenario would nonetheless deliver a revenue uplift of 37%, providing a compelling business case for investment in email optimization solutions that drives these uplifts in deliverability and engagement.

Reducing churn: Program owners should consider their email list as a corporate asset. List churn, in the form of hard bounces, opt-out requests, and complaints (all of which have to be suppressed) is depreciation. In the following example, we illustrate how a one-million address program would save $400,000 each year simply by reducing list churn from 0.5% to 0.45%:

2015_08_12_18_22_47_20150812_measuring_email_effectiveness___roi_blog_part_ii_docx___microsoft_word

You can read more on this line of thinking in one of my previous blog posts. Similar approaches can also be taken to calculating anticipated ROI from improved acquisition practices, as well as the use of win-back and re-engagement prog

Supporting brand: Not all email programs deliver a direct outcome. Softer objectives may include engagement (22%), retention (11%), and brand awareness (7%).2 Here, marketers may need to consider the relationship between email spend and brand value/customer satisfaction/web sentiment/etc. For example:

  • Companies are spending 38% of their total marketing budgets on digital.1
  • On average, 12% of digital marketing budgets are allocated to email.1
  • Almost $4 in every $10 spent on digital has a brand-focused objective.3

Using this data, one can construct a hypothesis that an email program supporting a $1B brand could be worth as much as $18M in its own right. Even when the primary purpose of the email program is to drive revenue, the role that it plays in getting your brand into your customers’ inboxes should still be evaluated as part of the overall value calculation

Further considerations:

  • Leverage composite metrics. Often, the relationship between two primary metrics can be instructive. The click-to-open ratio provides an excellent measurement of subscriber engagement. Looking at the combined effect of hard bounces/opt-outs/complaints provides a strong pointer toward subscriber disaffection.
  • Not all clicks are equal. A large portion of clicks may come from actions such as “view web version,” “visit preference center,” etc. These are clearly of less value than a click-through in response to the primary call-to-action.
  • We also work with email programs who measure effectiveness using web analytics, social media sentiment, and even as a function of share price, and we have helped them to prove value using all of these sources.
  • Bear in mind your CFO speaks a different language. You may need to be talking about metrics like Customer Acquisition Cost (CAC), and your marketing spend/customer lifetime value/time to pay back as a % of CAC.
  • The type of attribution model used also impacts on measurement of program value. If you are using a model that relies on first-click or last-click, contribution of email will likely be under-estimated. Linear or weighted attribution models should be preferred to ensure email contribution is fully recognized.

Once marketers have successfully proven the current value of their email programs, the next question centers on what they can do to further increase the future value that they deliver. In part 3 of this series, I’ll focus on 10 proven approaches to drive up the ROI being produced by your email programs.

References

  1. Econsultancy Marketing Budgets Report 2015
  2. DMA National Client Email Report 2015
  3. eMarketer/Marketing Charts (“Digital Ad Spending Benchmarks by Industry”)

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About Guy Hanson

Guy is a passionate advocate for intelligent use of customer data to drive responsive email programs. With a knowledge base that now spans nearly 15 years, he is a global e-mail expert and thought leader. Leading Return Path’s International Professional Services consulting team, Guy has worked with a broad range of clients across 5 continents to improve their email delivery, subscriber engagement and revenue generated. Outside of work, Guy is the Chairman of the DMA Email Council. In this role, he works with industry peers including brands, agencies, and service providers to promote the best interests of the email industry to a broader audience. He is also a regular contributor to the industry press.

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