E-mail can be a cost-effective marketing tool, but is it always the lowest cost option? You’d be hard pressed to find a bigger email fan than I, but sometimes there are more cost-effective ways to reach an audience. It depends on who you want to reach and how optimized your efforts are. Here’s a tale of two marketing plans, along with some guidelines to help you determine the best course of action, be it search, banners, email, or a mix.
We’ll focus on cost per order (CPO), the simplest, most valuable metric. CPO is a “success” metric; unlike deliverability, opens, and clicks, it directly addresses the bottom line. Below, the numbers we’ll use for analysis. They’ve been changed to protect the innocent, but the ratios mirror results I’ve seen with clients.
- Product A:
- Q3 search: $266
- Q3 email: $3,653
- Q4 search: $180
- Q4 email: $2,242
- Product B:
- Q3 search: $261
- Q3 banners: $360
- Q3 email: $59
Product B has the lower average CPO. But is it the more successful product? Should marketer B shift her entire marketing budget to email? Has marketer A optimized as much as possible? Should he drop email from his mix?
Determine Acceptable CPO
Instead of looking for the lowest CPO, calculate a reasonable CPO for your product.
If you sell small-ticket products for which repeat business or renewals are common, the goal is often to break even on the initial sale, with the CPO equal to revenue per order (RPO). This way, all renewals and additional business are pure profit. If you sell larger ticket items with no expectation of repeat business, you must ensure the CPO is below the RPO to make a profit.
If product A’s average sale/lifetime client value is $10,000 and product B’s is $100, product A has the better return on investment (ROI). But if average sales/lifetime client values are reversed, B has a better ROI.
You must also take product life cycle into account. Launch a new product, and you’ll probably need both to build awareness and educate potential customers to get the sale. That will likely inflate the CPO. It’s sometimes a necessary evil of a product launch, but it may pay off in the long run. As you learn more and optimize, you may get down to a very profitable CPO.
Another issue: learning the best ways to market a new product. In the beginning, you might see higher overall CPOs. As you test, analyze, and optimize, you should be able to lower the CPO.
If you market an older product or a commodity purchase, you’ll still strive to improve results. Tests are easy to conduct online, and results come in relatively quickly, often without significant costs.
Improving Marketing Plan A
In the above example, marketer A optimized well. In both channels, the CPO dropped by about one third in just a quarter. Better segmentation and targeting and more effective creative are just two means to accomplish this. Though it’s unlikely such dramatic drops will continue, the trend is good.
That said, the email CPO is still much higher than the one for search. Should marketer A remove email from the mix and shift all his marketing dollars to search? He’s doing a good job testing, analyzing, and optimizing. But his CPO is still much higher than his average sale. He can’t count on declines every quarter, or even on maintaining status quo from quarter to quarter.
E-mail comes in many flavors. Rather than cut it out completely, marketer A should continue experimenting. For these sends, he used a rented list. Marketer B used a house list for her email promotion.
The difference in results is dramatic. In addition to higher costs for the outside list, product A had significantly fewer orders per 1,000 email messages sent. Product B generated more than 10 times the orders per 1,000 email messages sent.
If you can cross- or up-sell clients, build an in-house list for acquisition. Marketer A should test sending email to his house list (which he has). If he didn’t have one, I’d suggest he start building one.
He’s had some success optimizing the outside lists, but there’s still a wide CPO gap. Optimization alone is unlikely to significantly close it. Even if he finds an outside list that performs, it’s a limited success. There are only so many names on that list, and it’s most likely not a renewable resource the way a good in-house list can be. Marketer A must overhaul his email program and start again.
Search keyword and keyword phrase costs fluctuate, as do orders generated from those terms. It’s easy for competitors to bid up prices. You may consistently generate 100 orders per month from a search term, but if its cost doubles, your CPO increases 100 percent. Putting all your efforts into search may work short term, but isn’t necessarily a long-term solution.
Marketer A shouldn’t put all his eggs in the search basket. You must always have a plan B in case plan A goes awry. In this case, the marketer’s first line of attack probably won’t win the war.
Improving Marketing Plan B
Should Marketer B remove search and banners from her mix and focus her budget on email? I wouldn’t recommend it. Most of her email success has been with a house list, but even that’s not guaranteed. House lists fatigue. Unless you’re pulling in a slew of new names on a regular basis, you’ll probably reach a sales saturation point in a fairly short time.
Product B’s CPOs are in an acceptable range. As they’re below average sale cost, all channels are profitable. It makes sense to continue marketing via all three channels. She should still optimize each, but, as with marketer A, she shouldn’t put all her eggs in one basket.
Bottom Line There’s no one right answer in online marketing. Different channels work for different products. The best answer is usually a mix. You’ll meet short-term goals while ensuring online marketing efforts remain successful over the long term.
Want more email marketing information? ClickZ E-Mail Reference is an archive of all our email columns, organized by topic.
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