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Determining the ROI of Email Marketing

July 17, 2008 by Stephanie Miller

Dennis asked me to post about something near and dear to my heart – determine the ROI of email marketing and making the case for best practices. So often, marketers find themselves in a very difficult business position – they know that what the CFO or CMO is asking them to do is not a best practice, but it’s really difficult to argue when the C-suite says, "We need more revenue, do it!"

I would say that the reason we don’t win those arguments is because we don’t effectively make a business case for why best practices matter. It’s not "free" or "cheap" to send out that extra mailing this week or use that old file that no one knows the source of or "buy" a list or blast one set of subscribers with a new type of message. Practices that even good marketers do all the time.

We all know that creating great subscriber experiences is key to driving even more revenue and higher ROI. Yet, in order to do that, we need resources. Those resources are technology and human — and often involve expertise that we don’t have resident in our marketing departments. How can we do the data integration, segmentation strategy, list management, tracking and analysis, deliverability management and compelling creative when we barely have enough resources to get the messages out the door each week?

The first way to make a business case is to show the actual costs of sending more messages than are relevant and valuable to subscribers. The short term revenue boost from sending "just one more" email blast this month has a real long term negative effect.

Your CFO (or CMO or CEO) thinks that sending more messages is simply the cost of broadcasting them – the CPM we pay to our email delivery vendor. Actually, the real costs include the costs of replacing all those lost via increased unsubscribe requests, complaints (clicks on the This is Spam button) and fatigue. It also includes the cost of unrealized future revenue from those lost subscribers. And it includes a "brand slam" factor based on negative brand impression and lower loyalty. When we do the math on an sample mailing of just one million records, we show that a mailing that the CFO thought cost around $1,000 actually cost us $800,000 That is real revenue! And a real missed opportunity for future sales.

The second way to make a business case is by showing how deliverability failure — caused primarily by things like overmailing, low relevancy and poor list hygiene — can have a dramatic effect on the bottom line. Most permission-based email marketers who do not actively manage their Sender Reputation and deliverability can expect that up to 20% of their messages never reach the inbox. You can hit "send" all you want. But some of those messages will get blocked by the ISPs and receivers because of a low Sender Reputation. The good news is that all of the factors that go into a great Sender Reputation (and high inbox deliverability) are the same things that smart email marketers do to drive higher response and revenue. Like keeping the list clean, honoring permission grants, processing bounces properly, removing complainers (those who click the This is Spam button) from your file and making sure your content is well constructed. Sender Reputation is all about how your messages are valued. If your messages are welcome by most subscribers most of the time, your Sender Reputation will be good.

How do you know? First, get more info on your own Sender Reputation: ww.senderscore.org or www.dnsstuff.com or check out some of the posts here on this blog.

And use this simple calculator to understand the impact of poor deliverability on the ROI of your program:

http://www.returnpath.net/senderscore/calculator/

Okay, you may be thinking. "Focus on the customer." That sounds reasonable. Yet, if this is so obvious, why don’t we do it? Well, I think it’s because email marketing works too well. It’s easy to get stuck in the status quo: blasting away at our subscriber files with irrelevant messages and hoping that it resonates with enough subscribers each time to make our number.

We may feel like victims of our own success, but frankly, I think we can do better. It’s just a matter of making the right business case.