Understanding the value of a business’s email addresses is another one of those basic concepts which get wide acceptance in theory but limited use in practice.
Why is this? We see many reasons. There’s limited knowledge of how to compute or estimate email value, and there are many recommended approaches. Some of those approaches can be difficult, both to execute and (as importantly) to explain. There are even people who’ve claimed that this email value metric has no realistic value at all.
We’re not among those. You can’t responsibly justify a business activity with the exposure of marketing email, without being able to explain the relationship between the expense and revenue that activity generates. In addition, you can’t justify further investment in that activity without understanding the fundamentals of its return. So, what to do?
Let’s keep it simple.
First, define your email base. It’s the size of your ‘mailable’ file, usually defined as opted-in, deliverable, and email active (opened/clicked) within some reasonable period of time. Your business may have additional qualifiers. Whatever they are, that’s your email base. It’s a number, and we’ll come back to it. You should calculate it as a monthly average over whatever period in which you’re trying to measure its impact.
Second, calculate the net revenue generated by your having mailed into that base for the past twelve months (or whatever period you wish). You sent those emails. How much did their recipients spend within some reasonable response window after having received them? Be careful here. Revenue should include not only what was spent online when the buyer clicked out of the email, but also — if you’re a multi-channel retailer — what that customer may have spent in-store, or other channels. Research suggests that this in-store component is substantial, so don’t kiss it off. Ideally, this requires a CRM database, with a single customer view. For customers receiving both email and direct mail, testing with control groups can help you determine the relative impact of each. Once you derive your revenue number, you will need to apply to it your business’s gross margin rate(s). You may not have this metric, but your finance people will. Ask them. This will yield the gross margin dollars on sales driven by your email.
(Note: if you’re a business — like CPG — that doesn’t recognize direct revenue from its marketing emails, you may need to work with your company’s market research team to impute the revenue value of your email subscribers.)
Third, calculate the costs of operating your marketing email activity for the period you’re analyzing. These include all direct and directly related costs: email acquisition, ESP operations and services, creative, production, analytics, and related database costs. There may well be other directly chargeable components. Add them up.
Now — to the simple calculation:
- Gross margin dollars from email activity (LESS)
- Email related expense (EQUALS)
- Net margin dollars related to email (DIVIDED BY)
- Number in average emailable base (EQUALS)
- VALUE OF AN EMAIL ADDRESS
Final thoughts: We’ve admittedly simplified this discussion for the sake of brevity. Approaches vary, but their basic components are those we’ve described here.
One suggestion: Get your finance team involved when you undertake this calculation, particularly if you do so for presentation to your senior management. Your finance people will have access to the correct margin and expense data. They can also help develop your methodology. Their review and blessing will give your calculations necessary credibility in senior management discussions.
If you’re looking for more guidance on how to measure the success of your email campaigns, be sure to download our brand new guide Email Measurement Explained!