Key Takeaways
- Treat your email program like a financial asset—total value = subscribers × lifetime value.
- Track three KPIs: Revenue per Email, Cost per Acquisition, and Subscriber Lifetime Value.
- Sending more emails can lose money once opt-outs and complaints are factored in.
When Google’s Dan Givol joined us for a recent State of Email webinar, he declared himself a big fan of email marketing—when it’s done well, of course.
In fact, he went one step further and said he wished more businesses would think about the value of their email programs the same way they think about a big asset on their balance sheet. By doing so, those businesses will make more focused decisions about how to boost the value of that asset and avoid actions that depreciate it.
But this means marketing leaders need to frame their programs in a way that helps the wider business leadership understand the value through this lens. It’s also important for leadership to ask the right questions in return, and perhaps even challenge the performance metrics that have traditionally been reported.
In our new series, we’ll be helping marketing leaders get the absolute most out of their email programs and communicate with more senior leadership by teaching them to speak fluent email ROI.
Let’s get started.
Calculating total value of your program
Marketing leaders know that email is one of the highest ROI channels because of how cheap it is to run a successful program. But that alone isn’t enough to convince the rest of the business to allocate more budget to your team. That’s why it’s crucial to find real ways to quantify the real value of your email program—not just opens and clicks.
How? There’s some math involved that can help us out.
Total value of program
Let’s take a simple example, using an email program with 1 million active subscribers. Applying an average subscriber lifetime value of $55 gives us a Total Value of Program (our first metric) of $55 million. That’s an impressively “thud factor” number for senior leadership, and serious investment decisions can be made with this as the starting point.
However, to get to this point, marketing leaders need their fingers on the pulse of their financial KPIs, not just their performance KPIs—and in our experience, many of them still don’t. There are three critical numbers that each and every one of them should know and report on.
The three financial KPIs
Revenue per email (RPE)
Perhaps the most important metric for any program. It’s calculated by dividing attributable revenue by the number of emails sent. Ideally, you should know how this number varies by:
- Mailbox provider: Do your Gmail subscribers generate more revenue than your Outlook subscribers?
- Engagement level: How does revenue per email differ between your active and inactive subscribers?
- Message type: Lifecycle messages like abandonment emails and back-in-stock notifications generate substantially more revenue per message than promotions.
Cost per acquisition (CPA)
This is the cost of all the activities that help add new email subscribers to your program—running sign-up websites, in-store efforts, social media activity, and so on. If your cost per acquisition exceeds subscriber lifetime value, there’s no point in running your program.
Subscriber lifetime value (SLV)
This is the revenue a typical subscriber generates over the course of their time in your email program. SLV will vary by program depending on factors like email frequency, conversion rates, and average purchase value, but the $55 referenced above provides us with a good sense for what this value might look like. Ensure these values are adjusted to allow for estimated future inflation.
Making it actionable
Every email program should have these KPIs in place and include them in monthly management reporting.
Each of these metrics can also be made more granular. For example, CPA can be broken out by list source—which sources generate the most subscribers, and which ones deliver the highest engagement?
All motivations for email program investment should be underpinned by these KPIs, so you can accurately quantify how that investment will be recovered.
Examples in the field
Let’s consider an example that brings these points to life.
Almost every email marketer will be familiar with well-intentioned suggestions that go “Email’s such a phenomenal revenue generator—let’s send more!” They know there may indeed be incremental revenue, but it’s also subject to the law of diminishing returns.
The 1 million active subscribers in our previous example receive two messages per week and generate $220,000 of attributable revenue.
Then say send frequency is increased to three messages per week, and generates an additional $75,000 of incremental revenue—a clear win at face value.
However, the additional send results in an additional 5,000 subscribers leaving the program because of opt-outs and spam complaints. If CPA per subscriber is $5 and SLV per subscriber is $25, then the combined impact of replacing the lost subscribers with new ones, as well as the future revenue that has been sacrificed, is $150,000.
That’s right—in this example, the true financial impact of the increased frequency is negative. Most email marketers probably knew this in their hearts, but it’s the financial KPIs that let them prove it.
The bottom line
We’re seeing a real shift towards the use of metrics that promote revenue attribution, SLV impact, and purchase behavior. Using bottom-funnel metrics (revenue per send, conversion value, repeat purchase rate, etc.) and tracking them monthly helps marketing leaders prove email’s business impact to the rest of the organization in a way that goes far beyond anything engagement metrics can achieve.
This article is the first in an ongoing series that explores this theme. We’ll consider topics like what a good ROI multiple looks like, how to balance sales pressure with subscriber churn, the many different ways subscribers respond to their emails (and how to measure them), and which of the emerging new email metrics are most important to adopt. Through this lens, we’ll examine email’s value in a way that makes it visible and relevant to every business’s C-Suite.
Looking for more insight into your email program? Check out how Validity Engage can take your email marketing and reporting to the next level.