Identifying Strengths and Weaknesses With RPE

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In my last column, I wrote about the value of the revenue per email (RPE) metric, how to calculate it, and how to use it to use it at a cell level to determine the winner when you're testing. Today I want to present more ways to use RPE in analysis to identify areas of strength and weakness in your email program.

For this client, I calculated their revenue per 1,000 email delivered (RPME) on a quarterly basis. It's the same calculation we discussed in the previous column, but now you're dividing the total revenue from email for the quarter by the total number of email messages assumed delivered for the same period. Note that it's the number of messages assumed delivered, not the unique number of people you sent the email to, that's used.

This calculation, done over a two-year period, showed the RPME trending downward - it went from a high of nearly $80 to a low of about $35 (see the graph below). You don't need to have an advanced math degree to know that this isn't the direction you want your revenue per email going.

If your business is seasonal, it may be helpful to look at year-over-year figures (see the chart below).This is the same data as on the first graph, but now you can clearly see the year-over-year variance by quarter. The orange line represents performance in fiscal year 1, the red line, performance in fiscal year 2. Looking at the linear trend lines, you can see that not only did fiscal year 2 trend lower, but it declined at a faster pace than the fiscal year 1 line. Again, this is not good news.

The question to ask now is "what changed?" For simplicity, let's focus on the fourth quarter, where overall RPE dropped from about $60 to about $35, a 43 percent decrease.

Eleven business units generated revenue from email marketing in the fourth quarter of fiscal year 2, compared to just five business units in the fourth quarter of fiscal year 1. Let's start by looking at year-over-year performance for just the five reporting revenue in both quarters (much as retail stores report year-over-year earnings from stores open a year or more).

When we isolate these five business units, we see that RPME performance decreased by 40 percent; clearly while the new business units that came online didn't help performance, the primary cause of the drop is a decrease in year-over-year performance of business units that had been sending email. The quantity of email assumed delivered more than doubled, but revenue increased by less than 25 percent. These business units are sending more email, but the effectiveness of each email sent is less than it was a year ago.

A more granular view of RPME shows that four of these five business units (highlighted in orange below) experienced a decrease in RPME; three of them showed RPMEs down by 45 percent or more, with one (business unit D) showing a decrease of 96 percent! Of the six new business units coming online in FY2, just one of them generated an RPME equal to or greater than the FY1 overall RPME. And four of the six had RPMEs that were below the overall RPME for Q4 FY2.This suggests there's a macro issue that may be negatively impacting RPME across the board for the organization.

The most common macro issues that will decrease your RPME are:

• Deliverability. RPME is factored using the quantity sent minus the bounces, which is the quantity assumed delivered. If you're being blacklisted, you may or may not get a bounce message back, so it's always good to do some investigation and make sure your email isn't being blocked.
• Overmailing. Many organizations are shifting budget into email marketing because it is very inexpensive. But if you increase send quantities too much, you will see diminishing returns, which will cause an overall decline in RPME.
• Poor list quantity. The quality of your list is more important for performance than its size. Many organizations resort to less qualified - or even questionable - channels in an attempt to quickly boost their list size. Getting an explicit opt-in from people before you send email is a high quality list growth strategy. Any strategy that doesn't involve an explicit opt-in (buying a list and appends that rely on negative option opt-out are two) risks decreasing your RPME, since these people aren't anticipating your email messages and are more likely to ignore them.

In addition to one or more macro issues, there are also likely some micro issues that are depressing RPME. Again, for simplicity, let's hone in on the single business unit with the worst year-over-year performance, which is D.

Although the client's overall send quantity is up, business unit D actually sent less email in Q4 FY2 than they had in Q4 FY1. Even so, while send quantity was down by half, revenue dropped by 98 percent.

If business unit D increases their send quantities to the FY1 level, will the revenue and RPME also return to those levels? No. It's not that simple.

At this point, a deeper analysis into the lists and creative used by business unit D in Q4 FY1 and Q4 FY2 is in order. The goal here is to look at what worked in Q4 FY1 and what didn't in Q4 FY2. Then devise a strategic plan moving forward to boost RPME.

The same type of analysis and strategic planning will need to be done for each business unit on the list, identifying their strengths and weaknesses and devising a plan to improve performance. This organization may never get RPME back to FY1 levels, but they need to reverse the steep downward trend in RPME to continue to have a successful email program.

Until next time,

Jeanne