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The ROI of Email Marketing - Guest Blog by Dan Ogdon

by kjosephs ‎07-06-2010 02:57 PM - edited ‎07-06-2010 03:53 PM (2,240 Views)

The ROI of Email Marketing

by Dan Ogdon

 

In the Email Marketing Census 2010, by econsutlantcy.com, it was found that 39% of companies do not know what their organization’s return on investment (ROI) from email marketing is.  Yet, 75% of companies have rated email as ‘excellent’ or ‘good’ for ROI.  To lay some groundwork, let’s talk about the investment:

 

As maybe the one ubiquitous marketing channel in an organizations mix, the price of using an email marketing service is relatively low.  For the sake of this article, let’s calculate the ROI of a single monthly email blast to 2,000 contacts.

 

Investments:

Average monthly service fee from an email marketing service provider - $35

Contract designers time to create artwork for the email template - $100 (assuming one hour of work)

Marketing managers time to craft message, target contacts and send email - $25 (assuming one hour of work at a salary of $50,000/year)

 

Not taking into consideration other intangibles, on a very simple level we could say the investment to send one email blast in a month is $160.

 

Now let’s assume we achieve 100% deliverability and a 30% open rate.  This gives you 600 recipients who read your message.  Let’s assume our message is compelling enough to garner a 20% click rate – this sends 120 contacts to a landing page that urges the consumer to purchase your products.  Let’s say the average price of your products are $200 and your average conversion rate for that landing page is 5%. 

 

That means of the 120 contacts that go to your landing page, 6 of them will purchase.  At $200 per transaction, you achieve $1,200 in revenue.  You spent $160 to create and send your message and received $1,200 in revenue – that’s a return on investment of $7.50 per every dollar spent – pretty darn good.

 

So why is this important?  From a marketer’s perspective, looking at our simple example, there are a number of things we can control that will affect the outcome:

 

Proper targeting and making sure the list is clean.

Email content relevancy, brand recognition and strong subject lines.

Creating an unmistakable call to action and crafting a clear message in the body of the email.

Landing page effectiveness and making sure it is simple to purchase.

 

To wrap it up, receiving a strong open and click rate is great, but if your landing pages cannot convert prospective buyers, you will not achieve a strong ROI.  Likewise, if your landing pages convert well, but you are not delivering qualified buyers due to poor targeting and messaging, you will not achieve the bottom line results you are looking for.  ROI is the big picture metric that determines the overall effectiveness of your campaign.

Comments
by Bob1475
on ‎07-07-2010 08:34 AM

 

 

To compare effectiveness of various marketing tools it is valid to do a Sales divided by cost of marketing calculation but this should not be confused with Return on Investment which should reflect the inflows and outflows of cash.             

 

To determine Return on Investment we would have to know the margin on the product sale because the net inflow is the revenue less the cost of goods sold.  If incentives are used then the marginal incentive to sales/marketing personnel should also be deducted.

 

Sales are not the goal, just the means to get to profit.

by acooley
on ‎07-08-2010 12:33 PM

Bob1475,

 

You make a good point. This article was intentionally meant to be a very basic and simple example and I did not include those metrics to not distract from the story. Thank you for your feedback.

 

Dan

 

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