How an Off-E-mail Multiplier Can Show Your Real Email ROI

Many people do not understand how valuable e-mails are. When management attempts to measure the importance of e-mails to the organization, they typically look at the revenue generated in the shopping carts of the e-mails. It usually comes to about 3% of total revenue. Nice revenue, but nothing to write home about. They are really missing a lot.

What happens when a subscriber opens and reads an e-mail? She may:
• Click on the e-mail and buy something
• Pick up the phone and order something
• Check a catalog to see what else is on sale
• Print out a coupon and take it to a store
• Get in the car and go see the product
• Do research on Google for better prices of similar products
• Discuss it with her spouse or a friend, leading to a possible purchase
• Remember what she saw and buy it later

E-mail subscribers do all of these things. The fact of the matter is that the revenue from the off-line sales due to an e-mail is usually several times the revenue of the e-mail’s shopping cart itself. If you are going to determine what sales your e-mails are generating, you have to include an off-e-mail multiplier to get the full effect of the e-mail.

How can you estimate the size of the off-e-mail multiplier? One retailer with 900 stores and a very active e-mail campaign did a study to prove exactly what happened. They did a test by sending direct mail and e-mails to a total of 140,000 their customers in their database. They divided them into four groups of 35,000 each.

Here were their results:

This was a really great study. Notice that the response rate goes up from the bottom to the top. Direct mail works better than e-mail—but costs about 100 times as much. Direct mail and e-mail together beat everything.

From this study, how can we calculate the off-e-mail multiplier? The answer comes from the last two numbers in the third row (e-mail only). From the e-mails sent, 21% of the sales were online, from the e-mail shopping cart or the website. Seventy-nine percent of the sales came in the stores. Simply divide 21% into 79% and you get 3.76. That is the off-e-mail multiplier. It tells you that to determine the non-e-mail revenue generated by an e-mail—for this chain of stores at least—you multiply the e-mail shopping cart sales by 3.76 to get the off line sales due to the e-mail.

I worked with several other data sources to determine the off-e-mail multiplier in other retailers and other industries. Every time I got a number similar to 3.76, but often much higher. Why should it be higher? if you study the chart you will see that the last column (% sales online) adds together sales in the e-mail shopping carts and sales on the website. Of course, most of the people who got the e-mail bought in the e-mail shopping cart—but not all of them. Some thought about it, discussed it with their spouse, and then went on the website to buy. This means that the percent purchased in the e-mail shopping cart was less than 21%, which means that the off-e-mail multiplier was higher than 3.76.

Okay. Now that you know about the off-e-mail multiplier, how can you use it to measure the true effect of your e-mails? You use a typical subscriber lifetime value chart.

Here is the way it is used:

In Row 9 you can see the Off-E-mail Multiplier. This number is multiplied by the e-mail sales to get the number of other sales due to the e-mail. The third year lifetime value of each of the 1,036,113 e-mail subscribers is $26.28. That means that each of these subscribers generates $26.28 worth of profit by the end of the third year – even though many never buy anything, and one quarter of them disappear over the three years. This is a number you can take to the bank and base your budget on. Here is what it tells you:

• Every time you lose a subscriber, through unsubscribe or a hard bounce, you have lost $26. Knowing this amount, you can afford to spend money to acquire more subscribers.

• If, for example, you pay your catalog reps $5 to get the e-mail addresses whenever someone calls to order something from the catalog, you are making a profit of $21 on every e-mail acquired.

• If your e-mail marketing manager wants to add a couple of creative e-mail people to create better e-mails which will increase the open and click rates of his e-mails, he can prove that the costs are justified by the way that the better e-mails increase the LTV.

The sales generated by the e-mails are not 3% of total sales, but more like 11.28% (3 x 3.76). Any marketing effort that can prove that they account for more than 11% of total sales is nothing to be ignored – particularly when the cost of sending e-mails is so low in comparison with the costs of direct mail, print, or TV advertising.

Any e-mail marketing operation that has not yet computed their Off-e-mail Multiplier had better get busy and figure out what it is right now.

Arthur Middleton Hughes ([email protected]) is vice president of The Database Marketing Institute. His new book from “Strategic Database Marketing 4th Edition” is due out from McGraw-Hill this summer.