Are You Watching Your ROI?

Who’s minding the mint when it comes to your email marketing dollars? This seems like such a basic concept, but many people using email may never have had to prove the bottom-line success of their marketing efforts — especially if they are coming from the offline world and have been using true advertising in mass media (newsprint, magazines, billboards, TV, radio, you name it…). But this is one of the beautiful things about email. It is accountable.

Here’s the rub. Most of you reading this column are using email marketing in one form or another. If you have not yet been asked to show how much money is coming in based on your email efforts, a day may very well come when that question will arise (especially in these economic times). We have talked about reporting before but we’ve mostly focused on click-through and open rates. What’s really most important, though, is money. Who cares that your click-through is 60 percent and conversion is 20 percent if those numbers are not translating to revenue?

Total Costs

Figure out how much it is costing you to send your messages. Start with the total dollars spent to create your message and get your list. Include any creative costs, list selection costs, list transfer or hosting fees, and so on.

Once you have sent your messages, add in the cost-per-message fees you are incurring. If you’re doing it in-house, you might think it’s not costing you anything. This is a dangerous assumption. A labor cost is definitely involved, and you can calculate an hourly rate for the work hours needed to execute your mailings.

Cost Per Message

Figure out how you are being charged for your email messages. Do you have to pay for sent mail and bounces or just sent mail? If you have to pay for bounced messages, make sure to include this expense in your cost calculations. However, when you figure out cost per message use only the number of messages sent:

total number of messages sent ÷ total costs = cost per message

Once you figure this out, you need to start looking at the money that is coming in — the return on investment (ROI). You can calculate this on a cost-per-email, a cost-per-campaign, or an overall cost-per-program (with a definitive timeframe) basis. Or you can (and probably should) calculate all of the above to establish a baseline as well as to define and leverage strengths and weaknesses across your other marketing channels.

Tracking Revenue

Ideally, you should try to capture and track dollars that have come in specifically because of an individual mailing or campaign. If you cannot, you should look at the “normal” flow of dollars coming in to your commerce engine and measure your base Web site traffic. You want to create a baseline number of what your revenues and traffic look like when you are not sending email messages. If you are driving people to telephone or fax in their orders, you should use a unique code that allows you to track that sale. Once you know how much money is coming in, you can create your total revenue number. This will be used to find your total ROI. Now you need to subtract your total revenue from your total cost.

The last number you will calculate is the ROI divided by your total costs, and that’ll give you your ROI percentage.

Number Recap

Let’s summarize the numbers you need:

• Total costs
• Total messages sent
• Total costs ÷ total messages sent = cost per message
• Total revenue
• Total revenue ÷ total messages sent = revenue per email sent
• Total revenue – total costs = ROI in dollars, or gross profit (since variable costs are not included)

  If this number is negative, you need to figure out if your email campaigns can be improved and how… and get busy making it positive. You can work to reduce costs or increase revenues.

• ROI in dollars ÷ total costs in dollars = ROI as a percentage

  For example, if your campaign brought in $10,000 in revenue and it cost you $5,000, your ROI in dollars would be $5,000. Your ROI percentage would be 100 percent. For every dollar it cost you, you made a dollar.

Now you should understand what it is costing to send each message, but, more important, you should know how much revenue you can expect for each message you send. This will also help you to determine what you can spend to acquire each name — and we have not even begun to talk about the cross-sell or up-sell opportunities that add to the lifetime value of a customer. In most cases, you can afford to spend a bit more than this direct ROI number shows, because you will be able to sell that customer other things. That increases the revenue associated with each order (or new customer you bring in).

Nothing impresses management like having your numbers in line and being able to prove the success of what you are managing. It’ll also give you a lift to find out how successful your campaign is.

Hopefully you’ll find that you have a positive ROI. If you find you are in the negative, you should look for ways to increase your revenue. To do that, go back to metrics such as click-through and open rates, which we talked about in our previous column, “Conversion Rates? What Do You Track?” If, after looking over these numbers, you need some pointers on improving them, check out some of our columns in ClickZ’s Email Marketing section. There is plenty of information to help guide you in improving your campaign.

That’s it for me, until next month!

—Jackie G.