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Why you should measure email ROI

Why you should measure email ROI Mitch Lapides

Does your organization measure the return on investment (ROI) of your email marketing efforts? If you're like a majority of marketers today, your answer is probably "no" to that question. You may track the success of individual email campaigns by measuring such metrics as open and click-through rates. Plus, you likely know what portion of your total marketing budget that email marketing represents. But that doesn't provide a good measure of the success rate of your overall email program.

So why should you measure email ROI? First of all, it provides a great benchmark metric for comparing email marketing to your company's other marketing channels, such as direct mail, print advertising, social media, and pay-per-click. Plus, by knowing your email ROI, you can more readily justify your email marketing program to clients and bosses, as well as justify investments for improvements to future email campaigns.

How do you measure email ROI?

On the most basic level, ROI is calculated with the following equation:
(return - cost)/cost

For any of you who have tried to calculate email ROI, you know accurately identifying and incorporating all of the components that make up both cost and return is a challenge. That's likely why many marketers today use the revenue per email (RPE) metric to help them get a handle on the value of their email programs.

RPE is calculated by using the following equation:
RPE = total revenue generated/(# of emails sent - # of emails bounced)

The good thing about calculating RPE is that you don't need to determine all the costs of your email marketing campaigns. Plus, it tells you about how much revenue your email list is generating. Unlike ROI, RPE doesn't tell you the profit (or loss) of your email marketing program. But you can bet that if your RPE is going down, so is your ROI.

What are the key drivers of email ROI?

Many metrics have an impact on email ROI; however, there are four major categories of factors that have the most significant effect on the ROI of your email marketing campaigns:

Email list
The size of your list, how fast your list growing, and the number of inactive subscribers all have an effect on the ROI of your email campaigns. For example, a high number of inactive users -- subscribers who have stopped opening your emails but haven't unsubscribed -- can hurt your email deliverability. Between 0.5 percent and 2 percent of a typical email list becomes inactive each month. And it's not unusual to find between 30 percent and 60 percent of an email list inactive, especially if an organization hasn't removed inactive subscribers or run a re-engagement campaign in a few years.

Email list attrition
Unsubscribes, bounces, and spam complaints also have a direct effect on your email ROI. The following are some typical list attrition benchmarks:

  • Unsubscribe rates between 0.2 percent and 0.75 percent are typical for organizations that send at least one email per month. But rates could be as high as between 2 percent and 5 percent with lower email frequencies.

  • For companies that send emails regularly, bounce rates of between 2 percent and 5 percent are not unusual.

  • Spam complaint rates should be below 1 percent for each mailing, if good email practices are in place.

Email costs
From copy and design to delivery, how much does each of your email campaigns cost to produce? This plays a major role in determining the ROI for your email marketing efforts.

Email performance
The final driver of email ROI is email performance, which depends on a combination of actions by your email recipients. Open rates, click-through rates, landing page conversion rates, and revenue per conversion are all examples of the important metrics that measure email performance and impact email ROI.

How can you improve email ROI?

A sales funnel chart is a great way to help visualize the factors you can leverage to improve your email ROI. Although volumes could be written about how to improve email ROI, the following are some of the most important things to think about as you set out to improve your email marketing campaigns:

Build and maintain a high quality, permission-based email list
This is one of the most important steps in achieving a high ROI for your organization's email marketing program. To keep your list healthy and growing, companies need to implement year round list-building and hygiene strategies. Here are a few:

  • Use an opt-in -- preferably double opt-in -- to subscribe people to your email list.

  • Promptly remove all bad email addresses and bounces from your email list.

  • Always provide an unsubscribe option in all your organization's emails, especially to comply with the Federal CAN-SPAM Act.

  • Use a variety of methods to continually grow your list including social media, pay-per-click, affiliate relationships with other companies, and direct mail.

  • Manage inactive subscribers -- people on your list who haven't opened or clicked on an email in a certain period of time, such as six months. Try a re-engagement campaign, for example, sending your inactive subscribers a compelling new offer to persuade them to opt in again.

Increase your open rates
The unique open rate -- the percentage of total recipients who opened an email at least once -- is a good indicator of whether your subject lines are effective and if your message is resonating with your target audience. Here are a few ways to help improve your open rates:

  • Create engaging subject lines that are concise, factual, describe the content of the email, and add a sense of urgency (when appropriate).

  • Design effective preview panes that include your company logo and the call to action.

  • Consistently deliver relevant and valuable content.

Boost your click-through rates
The unique click-through rate -- the percentage of subscribers who clicked on a link to end up on your designated landing page -- is a major determinant of the success of your email campaigns. This metric indicates how well your content is meeting your subscribers' interests and needs. Here are a few ways to improve your click-through rates:

  • Develop strong, relevant offers for your target audience.

  • Don't clutter your emails with multiple calls to action.

  • Be sure the eye-path leads to the call to action in your emails, placing the important content in an F-shaped pattern.

  • Create mobile-friendly campaigns, ensuring your emails render correctly on mobile devices, too.

Optimize your conversion rates
Conversion is the final goal of your email campaign. The landing page conversion rate is the percentage of subscribers who take the desired call to action on your landing page. This key metric tells you if you're getting the results you wanted. Here are a few ways to help improve your conversion rates:

  • Design clear and prominent calls to action that "pop" with the use of contrasting colors.

  • Develop dedicated landing pages that are focused and consistent with your brand and email campaigns.

  • Conduct statistically valid tests on important variables that impact your campaign, such as subject lines, day and time sent, and design elements.

As you set out to improve your email marketing campaigns, you may feel overwhelmed by the many variables that affect email ROI. Where should you start? I recommend taking it one improvement at a time and setting reachable goals. You'll soon discover that all the small improvements you make will begin to work together to have a huge positive impact on the ROI of your company's email marketing program.

Mitch Lapides is president and CEO of FulcrumTech.

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"Businessman's hand receiving or sending mail icon" image via Shutterstock.

  Mitch Lapides is a senior technology-product executive with more than 20 years of experience in strategic planning, marketing, email marketing, software product development, publishing, and product management. Mitch has completed multiple...

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