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:
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.
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%:
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:
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
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.