Understanding Email Marketing ROI

email ROI

Email marketers must measure the effectiveness of any given email marketing campaign and its return on investment (ROI). Each retailer has its own way of measuring the impact of email campaigns and email marketing strategies. Having worked with many different retailers and seen different approaches, we would like to summarise the method and technique that we consider to be the most successful. It’s relatively simple and straightforward, but it allows the marketer to assign an exact financial value to each campaign, provide a decision-making framework when deciding between email campaigns and software vendors, and quantify the return on investment for any email marketing software.

The Basics

Let’s start with the basics and explain the critical components of the email conversion funnel at each stage.

Deliverability

Deliverability is at the top of your email funnel. Your campaign is ineffective if it doesn’t reach your customers. E-commerce email campaigns will typically achieve 99% deliverability with less than 1% of hard bounces. An abnormally large number of bounces is usually a sign of an old, stale list or a spam-filter problem.

Open rate

Unless the email is opened, an email landing in the consumer’s inbox will not generate any sales. The open rate is the first step in the buying process and is one of the leading customer engagement metrics. Open e-commerce rates range from 10% to 25%, with an average of 21.33%. There are a variety of factors that can influence email open rates, including subject lines, the time the email is sent, the frequency of your campaigns, and the content of emails (the consumer will not see the email content until the email is opened). But if the content is not engaging, the consumer will be less likely to open emails in the future.

Click-Through Rate / Click-To-Open Rate

Click through is how your shoppers get from your campaign to your website and is the next step in the email purchase funnel after the email open. The content of the email is the main driver for email click-throughs. Shoppers will hopefully be interested in one or more of the items featured in the campaign and click on a link to consider making a purchase.

While the industry often cites click-through rate (CTR), which is clicks divided by the number of emails sent, click-to-open rate, determined by clicks divided by the number of emails opened, is more telling about the level of engagement of the email content. This helps you to focus on the effectiveness of email content, eliminating the open bias that is heavily influenced by subject lines and the time of day. The average open-to-click e-commerce rate is approximately 15–17%.

Conversion Rate

The proper allocation mechanism (Mercanto has a built-in attribution mechanism) helps you to monitor and track how many purchases are made after shoppers click on email content. Conversion rate is just the number of transactions divided by the number of email clicks. Conversion rate is at the very bottom of the sales funnel and ranges between 1% and 4%.

Revenue

You should be able to track and calculate not only transactions but also actual sales, i.e. the amount of all purchases made after users click on the email content. If the sales value can not be determined, you can always multiply the number of conversions by the average value of the order to get an approximate value.

Email marketers must measure the effectiveness of any given email marketing campaign and its return on investment (ROI). Each retailer has its own way of measuring the impact of email campaigns and email marketing strategies. Having worked with many different retailers and seen different approaches, we would like to summarise the method and technique that we consider to be the most successful. It’s relatively simple and straightforward, but it allows the marketer to assign an exact financial value to each campaign, provide a decision-making framework when deciding between email campaigns and software vendors, and quantify the return on investment for any email marketing software.

Calculating Email Marketing Performance

We’ve seen a whole range of different approaches to measuring the effectiveness of an email campaign. What we are suggesting here is the most straightforward metric that can be measured in an A/B test or in isolation to assess an individual campaign’s effectiveness.

To measure the performance of the entire email campaign from top to bottom, we use:

Revenue per email sent = Total sales attributed to the campaign ÷ Number of emails delivered

To measure the output of the email content, we use:

Revenue per email opened = Total sales attributed to the campaign ÷ Number of emails opened

To assess the effectiveness of an individual email campaign or the effectiveness of particular email marketing solution, you could evaluate these metrics. For example, if you want to introduce a new weekly email newsletter, you can measure its revenue per email sent and comparing it to current weekly email promotions. Alternatively, if you wanted to evaluate the revenue impact of email merchandising platforms such as Mercanto, you would compare the revenue per email opened for un-merchandised campaigns and campaigns merchandised by Mercanto.

Importantly, these values can be calculated via an A/B test: you quantify revenue per email sent/opened to the control group and test group and calculate incremental revenue per email.

Measuring email marketing ROI

The metrics we are proposing are particularly suitable for measuring and estimating the ROI of your email marketing platforms.

Revenue before Email Costs = Revenue per email sent × Average margin per sale 

Email costs will include costs for your email service provider plus fees for any software that optimises your email content. Mercanto is an example of software that optimises email content by algorithmically selecting and optimising the products included in each customer’s email.

Total Email Marketing ROI = Earning before Email Costs ÷ email costs

Now, how do you calculate the ROI of a solution like Mercanto? First, you calculate revenue by email opened with Mercanto and without Mercanto to determine incremental revenue (these metrics could be obtained through an A / B test):

Incremental revenue per email = Revenue by email with the Solution— Revenue by email without the Solution

Then you divide the result by the cost of the solution for each email opened/sent to get the ROI:

ROI of Solution = Incremental Revenue per email ÷ Cost of Solution per email

Putting it together

You may wonder why we spoke at the beginning about deliverability, open, click-through, and conversion rates when we focused on email revenue as the most important single metric.

The devil is in the details, and these metrics provide valuable insights into the email performance metrics. Specifically, let’s say the solution improves email performance by $0.02 per email sent. Okay, the question is, how? The solution could have delivered the increased revenue per email by enhancing any of the following variables: open rate, click-to-open rate, conversion rate, or average order value.

Assuming that the other metrics remain constant, a lift in any of these metrics would increase revenue per email sent. Understanding the improvements in each of these individual metrics provides us with insights into how revenue improvements are achieved.

 

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