Many marketers are sure that email marketing is a powerful engine for sales and that it has the highest ROI compared to other marketing channels. Statistics have confirmed these assumptions.
According to Econsultancy, 73% of respondents estimate a high profit margin when money is spent on email activity. Other marketers doubt this: “Trust, but verify!” teaches the proverb.
In this article we will try to calculate the value of email marketing. We will be paying attention to a number of metrics, which allow us to evaluate the effectiveness of email campaigns. Correctly made calculations help marketers make sure there is a high ROI from email marketing. The metrics mentioned above, along with some others, are used by most email marketing services, such as bulk email service by SendPulse.
Was the email campaign profitable?
You can answer this question by calculating the value of one subscriber:
1. Calculating the number of delivered messages
Firstly, find out the total number of subscribers who are active in email newsletters. We do this by using a metric called delivery rate or deliverability. Focus on the number of delivered emails, because some of the emails can fall into the spam folder.
The formula for calculation of the active subscribers list is simple:
2. Calculating the number of sales
Then you need to calculate the sales that have been made through your email marketing channel. What does this mean? This is when the subscriber makes a purchase by clicking on the link in the email. The example below shows an abandoned cart email. Direct sale means that a subscriber makes a purchase by clicking on the “Pay now” button.
3. Calculating the value of each subscriber (Subscriber Value)
We do this based on the results of the first two calculations. The number of delivered messages — Subscriber Value — expresses the number of active subscribers. Let’s call it index “A” = 150,000 people. We then define the duration of the email campaign. For example, 12 months. Let’s say all the direct sales over this 12-month period amounted to 2,200,000. This will be index “B”. In order to calculate the value of each subscriber, we will use the following formula:
The value of one subscriber is $14.66 per year.
4. Calculating the value of the subscribers’ lifespan
Now we need to calculate the value of the subscribers’ total “life cycle.” To do this, you must know the time between the first and the last purchase of the subscriber. For example:
1/3 – subscribers who made a single purchase;
1/3 – subscribers who made a purchase within two years,
1/3 – subscribers who made a purchase within three years.
First, divide the total number of active subscribers into the above three types:
150,000 ÷ 3 = 50,000
The entire lifespan of subscribers who made a single purchase:
50,000 × $14,66 = 733,000
The entire lifespan of subscribers who made a purchase within two years:
50,000 × $29,32 = 1,466,000
The entire lifespan of subscribers who made a purchase within three years:
50,000 × $43,98 = 2,199,000
Next, divide the amount ($4.398 million) by the number of subscribers: 150,000 people.
$4,398,000 ÷ 150,000 = 29.32
And we get the final value of each subscriber: $29.32.
What is the importance of this figure? If you know what the return on investment is for each subscriber, you will be able to correlate the results with your expenses. In our case, if you spend $40 per subscriber, an email campaign will be unprofitable; if you spend $15 per subscriber, an email campaign will be profitable.
Let’s calculate the ROI via the online calculator
The online calculator of the ROI significantly facilitates the work of marketers.
In order to get the automatic calculation of the ROI for email marketing, you need to fill out a form with the metric value, which gives the opportunity to evaluate the effectiveness of each email. Below we consider the three main parameters: Open Rate, Click Rate, and Conversion Rate.
The higher this index is, the higher the probability of sales. This indicator expresses the ratio of open newsletters to the total newsletters that are delivered.
If the Open Rate of your newsletter is reduced, then sound an alarm. Look for weaknesses in your email. Perhaps something needs to be changed. In order to increase the Open Rate, consider the following:
- Personalization. Use your subscribers’ names. Statistics show that personalized emails are opened 26% more often than those non-personalized.
- Keep your word. If your subscriber has selected a newsletter frequency of three newsletters a month, then meet their commitments! The number of sent newsletters must not exceed the number that the subscriber wished to receive. Otherwise, he or she will not open them.
- What subject lines should you use to increase the Open Rate?
‘Reasons why’ subject lines (e.g. Three reasons why you should use…)
‘Benefit’ subject lines (e.g. Write a detective novel in 30 days.)
‘Question’ subject lines (e.g. Why should you use email marketing?)
‘How-to’ subject lines (e.g. How to write a brilliant subject line.)
‘Targeted’ subject lines (e.g. For Investors Who Hate Paying Commissions.)
The next metric that you need to enter in the ROI calculator form is the Click Rate. The Click Rate expresses the percentage of subscribers who clicked the links. It can be calculated by dividing the number of unique clicks by the number of delivered messages.
The Click Rate is calculated only with unique clicks. This means that only one click from one subscriber is registered. To achieve a high Click Rate, you can experiment with different elements of your letter:
- Design (colors, images, etc.)
This metric expresses the percentage of subscribers that made a targeted action. To calculate the Conversion Rate you divide the number of actions by the number of delivered letters.
Your email campaign is made just for one purpose: to get subscribers to make as many targeted actions as possible, for example purchases, filling out a registration form, downloading files, and so on. You can use Google Analytics to keep track of your goals.
After entering all the data in the ROI calculator, you will receive a report of the ROI for the period that you specified in the form.
We hope that this article will help you in calculating the value of email marketing and ensuring the effectiveness of this channel of communication. Good luck!