The Sum of the Parts, Part 9: Measuring Email ROI

Welcome to the final article in my series about email marketing. I’ve saved a really important topic to the end: measuring return on investment. It’s something that most of us leave to the end or after the event, so it seems fitting to have saved discussion of it for last.

Email service providers are great at saying the ROI on email is very high, and indeed it is, but you need to work out the cost of the different promotions in your various campaigns when setting them up. You also need to make sure you don’t put a promotion in every email campaign (contentious I know). If you do, your customers will think an offer is the norm and will stop reacting to your campaigns; they’ll simply sift your emails out of their deleted folder when they actually want to buy from you, as they know they’ll get a discount (I did this myself only yesterday!).

The actual cost of sending the email out (the cost per thousand, or CPM), in the scheme of things, is pretty low. But other costs, many of which are hidden, can mount up.

If you use standard templates, then your creative costs are kept under control. But don’t underestimate the value of investing in a copywriter to ensure that the emails are well written (you can hire a freelancer, but try to use the same person for all yur campaigns, for consistency). What about imagery? Can you use stock photos, or do you need to have something specifically shot for the email? Some companies want their emails to go viral (Facebook and Twitter are great at helping you do this), so they create special videos for their emails. Then you need to allocate the time of the person creating and sending out the email (after all, you are paying him a wage). And finally, there’s the cost of the promotion itself and its effect on your final margin.

Let’s just remind ourselves of some of the main campaigns you might send out:

1) welcome campaign
2) weekly/fortnightly newsletter
3) abandoned shopping-cart email
4) triggered sales campaign
5) reactivation program.

Each campaign needs to be treated differently, as each has its own objectives. Some might be single emails, and others might be series campaigns. You might be willing to make a negative return on part of the program, but you know you want to make an overall profit on the activity. Through testing you also need to see where the biggest return is going to come from (most of this will be determined by the promotions you run). So think about the promotions:

1) straight discounts (percentage or dollars
2) added value (buy x and get y half price)
3) free product/gift with purchase
4) stepped discounts (spend a and get b off, spend a+c and get d off…)
5) free delivery.

Each promotion has a cost. You can reduce the actual cost to the business if you introduce a minimum spend requirement. From the history of your campaigns, you’ll know your delivery rates, open rates, clickthrough rates, conversion levels, and average order values. This will help you work out the anticipated sales. All you then need to do is take out your cost of goods and the costs we talked about above, and you’ll have an idea if your proposed campaign will be a profitable one. By testing multiple promotion levels you’ll be able to work out even more accurately the response to the campaign, total sales, total costs, and therefore the ROI.

In some cases it will be more profitable to have lower sales and give less away. I have a rule of thumb that 50% of emails should be product oriented and the other 50% promotion led. While the product emails typically reap less revenue than the promotional ones, they nonetheless enhance the brand, make sure that customers don’t become trained to expect discounts, and ensure that there is some balance to the communications.

In conclusion, measuring ROI lets you know where to invest your time and money in your email campaigns. It is really easy to do, and you should have a simple spreadsheet set up for each campaign. Make sure it is filled in as a part of the campaign brief; there is no excuse for not doing it.

Rob Galkoff ([email protected]) is CEO of the Business Consultants. He was previously marketing director at multititle UK mailer Findel.