A Case for Outsourcing Email Marketing

Perhaps Forrester Research summed it up best in its January 2000 report on email marketing: “Sign up with an email services outsourcer — now. Marketers that outsource the delivery and list management of their email have higher conversion rates than those that keep email operations in-house.”

As marketers from all industries begin to realize the power of email marketing in attracting and retaining customers, as well as in growing their customer base, many are faced with a big decision. The decision of whether to not only develop, but also execute an email marketing strategy in-house or rely on a partner can be a challenging one. Marketers are faced with three options — implementing a software package and selective hardware to manage and execute email campaigns internally, using an application service provider (ASP), or partnering with a full outsourcer.

In an attempt to help marketers make this decision based on sound business rationale, this article compares the costs and other critical factors involved in each of the three choices. The analysis is based on the industry-average message load of 200,000 messages sent twice per month.

Manage and Execute Your Email Campaigns Internally

At the outset, a software package may look fairly tempting. A licensing fee or outright purchase can bring the software package in-house for approximately $50,000, leading the marketer to believe that this is the only cost associated with sending email marketing messages. However, there are widespread cost implications to this choice, such as the staff, hardware, and bandwidth necessary to effectively manage email campaigns. With dedicated information technology (IT), database marketing, and the product marketing resources needed, total salary costs can easily reach $250,000 to $300,000. Adequate bandwidth may cost a minimum of $12,000 per year, and the bare-minimum hardware required for message delivery can cost more than $100,000.

What looks like a $50,000 decision can quickly add up to nearly $500,000 in expenses for the first year. Furthermore, because email marketing technology is continually and rapidly evolving, the software purchased today may not support critical marketing functions six months from now, driving a marketer’s investment into obsolescence even before the marketer gets the program running. As email address lists grow, scalability may also become an issue.

Employ an Application Service Provider

Many marketers consider the option of employing an application service provider (ASP). ASPs offer marketers a web-based interface to an email marketing delivery engine, allowing marketers to avoid any special software, hardware, or bandwidth costs related to an email marketing program. However, database marketing, IT, and product marketing resources are still required to operate the complex ASP systems, establish segmentation schemes, track and analyze campaign results, and develop marketing strategies.

Most often, a setup fee of several thousand dollars is charged, and ongoing fees are priced based on the number of emails sent in a given period. Per-email fees generally hover around a penny per email, and while the thought of this may entice many marketers, especially when compared to the relative cost of an offline direct-marketing piece, they must take into account the numerous other expenses that relate to their email marketing program.

The total costs for hiring an ASP to deliver email marketing messages can easily reach $400,000 for setup for the first year of the program. ASPs offer very little integration with any other marketing or customer relationship management (CRM) systems, leading to isolated information islands and inconsistent reporting.

Partner With a Full Outsourcer

Another option for marketers to consider is hiring a fully outsourced email marketing provider. With a clear focus, these service providers can take a marketer through the email marketing strategy-development process, identify strategic campaign scenarios, consult on industry best practices, deliver messages, track and analyze the results, and optimize their effectiveness over time. This, coupled with nearly unlimited scalability, a capacity to quickly bring a marketer to a fully operational strategy in a short period, and access to the latest technology, can boost the effectiveness of any email marketing program. Marketers are beginning to discover that fully outsourced providers can be a cost-effective way to establish an intelligent and optimized email marketing program as well — allowing them to avoid hardware, software, bandwidth, and staffing costs while reducing the operational burden on a corporate IT department.

Per-email fees and additional charges for data hosting, automated messaging, and viral marketing systems are generally assessed based on the volume and complexity of emails sent, allowing a program to grow into an investment over time, rather than incurring costs all at once. Marketers may spend approximately $250,000 for setup and service fees for the first year of an email marketing program using a fully outsourced email marketing service provider.

The importance of these benefits cannot be understated; however, another capability that some fully outsourced service providers can offer is the integration of email marketing programs with all digital media. Media integrators can combine campaign response and customer-profile data gathered across digital media channels — such as banner ads, wireless messages, search engines, and emails — to form a more accurate picture of every customer, allowing marketers to more accurately target each message. They can also educate the marketer on what digital media channels are driving the best results based on their objectives and channel more resources to the successful ones.

As Forrester Research suggests, there are numerous reasons why marketers benefit from outsourcing email marketing. The challenge for marketers is how to facilitate the integration of email marketing data with other digital marketing efforts, increasing the effectiveness of email marketing as well as every other customer touch point on the web and beyond.