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Calculating the Cost of Increased E-Mail Frequency

  |  June 7, 2006   |  Comments

How overmailing an e-mail list can come with a significant negative financial and deliverability outcome.

The good news: email has emerged as the marketing channel that generates the highest ROI (define) for most companies.

The bad news: as a result, "send more email" is a frequent mandate from the executive suite to the marketing staff when more short-term revenue’s needed.

Ah, if life were only so simple: revenue on demand from email, just like turning on a garden hose. Increasing frequency does work, of course. Whether you go from 2 to 4 times per month or 6 to 12, you’re likely to see a strong increase in revenue. But you’re also likely to pay a high price for the increased revenue.

Impact of Increased Frequency

Frequency bedevils both postal and email marketers. Overmailing in both channels can potentially fatigue a list so much that recipients stop responding. Yet postal overmailing doesn’t put the delivery channel at risk.

E-mailing too often, on the other hand, can generate so many additional unsubscribes and spam complaints that you end up trading increased short-term revenue for a loss in long-term revenue, as well as increased list shrinkage and potential damage to your brand and email reputation. Any additional revenue, leads, downloads, trials, or other desired actions you generate could easily be gobbled up by the higher costs of replacing lost customers or prospects.

This doesn’t mean you can’t safely step up frequency. In fact, many companies may be undermailing to their current lists. But you first need the right data and strategy to send more relevant, targeted messages at the right frequency for each customer segment.

Case Study: First, the Good and So-So News

A multichannel retailer more than doubled its monthly mailings in an effort to increase revenue. Mailings to its general list went from an average 5 per month (slightly more than once per week) to 12 per month (roughly three times a week).

The increased frequency produced 38 percent more revenue than the five-times-per-month program. OK so far. But calculating the two approaches based on average revenue per email delivered (ARED), the 5-times frequency outpulled 12-times at 18 cents compared to 10 cents per email delivered.

Over a year, if email delivered, clicks, opens, and conversions remain steady, the company would take in an additional $2.2 million by sending more than twice as many email messages. Music to management’s ears! Yet the additional revenue comes with an expensive catch.

Now, the Potential Bad News

That $2.2 million top-line revenue looks good, but let’s calculate the costs, including hidden ones:

  • Over the course of a month’s mailings, the 5-times approach produced a total unsubscribe rate of 0.74 percent, compared to 1.77 percent for the 12-times mailings, an increase of nearly 140 percent.

  • More dramatically, the per-mailing spam complaint rate increased nearly sixfold, from an average per mailing of 0.009 percent to 0.057 percent for the 12-times mailings. But over a month, spam complaints increased 1,300 percent, from a monthly rate of 0.046 percent to 0.646 percent for the 12-times mailings.

  • Adding bounces (a modest increase in the 12-times mailings), the lost address (spam complaints + unsubscribes + hard bounces) rate jumped from a monthly 1.53 percent to 3.44 percent. Over 12 months, this means 41.3 percent of the list will disappear, compared to an annual loss of 18.3 percent for the five-times mailings.

  • In this example, the company would lose an additional 125,000 subscribers annually due to the increased mailings. Though the average cost to acquire an email address from a prospect or customer varies widely, using $15 for this example results in an additional $1.9 million to replace the lost email addresses.

  • Add an estimated $110,000 for the increased cost to send the email and employee time for creating, testing, and sending an additional 84 campaigns per year.

  • The final cost is the toughest: estimating potential lost revenue from customers who said adios. If we apply an average annual value of $14 per email address, potential lost revenue totals $1.8 million. Let’s be conservative and reduce the lost revenue to $500,000, assuming these lost customers were probably the least active shoppers.

Whipping out the calculator, the negative financial impact totals $2.5 million. So in this scenario, by dramatically increasing frequency the company increases annual revenue by $2.2 million but at a potential "replacement" cost of $2.5 million.

Whether this example and the costs are in line with your own company’s or not, the facts are clear: overmailing to your email list can have a significant negative financial and deliverability outcome.

In our next column, we’ll provide a formula for you to make your own calculations, diving more deeply into the deliverability effect and alternatives to simply emailing more frequently to your entire list.

Until next time, keep on deliverin’.

Want more email marketing information? ClickZ E-Mail Reference is an archive of all our email columns, organized by topic.

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ABOUT THE AUTHOR

Kirill Popov and Loren McDonald

As director of ISP relations and delivery, Kirill Popov creates and enforces strict usage and anti-spam policies, maintains ISP and community relations, and oversees all abuse and policy investigations and inquiries for EmailLabs clients. Kirill works with clients on best practices, content, design, and list hygiene to minimize potential delivery issues. He's a registered member of the SpamCon foundation and representsEmailLabs on AIM's Council for Responsible E-Mail.

Loren McDonald is vice president of marketing at e-mail marketing automation company EmailLabs, overseeing corporate marketing activities and client consulting services. He has 20 years experience in marketing, consulting and strategic planning. Earlier, Loren was founder and president of Intevation, an e-marketing services firm specializing in e-mail and SEM. He's held executive marketing positions at companies including USWeb/CKS (marchFIRST), NetStruxr, and Arthur Andersen.

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