Monday, February 8, 2010

Calculating the True Cost of an Email Campaign


Since the advent of email marketing in the mid-1990s, companies have embraced the misconception that email is virtually “free” as a marketing medium. This false impression often leads to over-communication, which, in turn, triggers diminished response rates, spam complaints, and unsubscribes. Even marketers who are sensitive to email recklessness sometimes face internal pressures, such as of year revenue numbers, to send “one last blast to the entire database” with the justification that “it doesn’t cost us anything.”

So what is the true cost of an email campaign?

To understand true cost, you need to first understand your marketing database a little better. The names within it are not all equally engaged, and your actions affect this level of engagement.

Net New Names

At one end of the spectrum are the names entering your database. As a marketing team, you work hard to populate your database -- attending shows and events, putting on webinars, publishing research, and investing in paid and natural search. As these efforts succeed, new names will enter your marketing database. By understanding the investment it takes to create these marketing programs, and then dividing that total cost by the number of net new names in your database, you can calculate a Cost per Net New Name. For the sake of this discussion, let’s assume that cost is $10.

Emotional Unsubscribes

At the other end of the spectrum are the people who are disengaging from your messaging. The reality is that many marketers only measure actual unsubscribes – those who clicked on the unsubscribe link – as their measure of disengagement. However, this limited measure fails to fully account for the way in which most email recipients disengage. Most recipients reflexively ignore or delete unwanted messages, rather than clicking on an unsubscribe link. At this point, they have “emotionally unsubscribed,” and are not paying attention to your messages.

To identify people who have “emotionally unsubscribed,” you need to measure whether they have engaged at all – email opens, clicks, or website visits – in the past three or four months. If not, it is likely that they have disconnected from your communications.

The Path to Disengagement

Between these two ends of the spectrum is what you, as a marketer, control. Irrelevant messaging, poorly targeted content, and thinly disguised sales pitches will quickly drive your audience away. To understand how it takes for your prospects to disengage, you must analyze your email marketing history. Look at the number of “ignored” emails between any two “non-ignored” emails. If you look at a “reasonable maximum” for this number – say the 80th percentile – you can see how long it takes a person to disengage. For example, if only 20% of your audience ever re-engages after they have ignored 20 emails in a row, your Disengagement Path is 20 emails. Let’s use this figure for our example.

Calculating a Real Cost

Now, with these two values, you have a way to calculate the true cost of an email campaign. People who disengage must be replaced with net new names, or your overall effective marketing database shrinks. So, for an email campaign that is sent to 100,000 people, of which 40,000 open it, we have 60,000 who did not engage in any way.

The cost of this campaign is found by dividing those 60,000 by the Disengagement Path of 20. This email campaign can be said to have pushed the disengagement of 3,000 people.

At $10 per name, this loss of 3,000 people has a true cost of $30,000. Not an insignificant cost for an email marketing campaign at all.



If thought about in this way, which is much more accurate than just the hard costs of the email send itself, we would all make significantly better email marketing decisions as we would be guided by a much more accurate view of the economics.


(This article was originally published as a guest post on MediaPost)
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6 comments:

John S. Gibb said...

Thank you for a very good perspective - as you note, often inculding factors not considered in calculating cost.
One thought - even in calculating email campaign cost per your methodology - is that ultimately, I would be surprised to see scenarios in which other marketing and demand gen activites pull a higher ROI than email, hence the continued reliance on email as a key component in the mix.
One suggestion I would make is for those "emotionally unsubscribed," consider making an investment in re-engagement vs. re-populating with a new new name. It of course comes down to cost of acquisition, but re-engaging a name you already have may be less costly than engaging a cold name.

Steven Woods said...

John,
You're definitely correct that email still has (if done well) a great ROI. Very much agreed.

Also, re-engagement can definitely be a great strategy. I suspect it would have muddied the waters a bit in this (admittedly over-simplified) framework, but it would be easy to add in - once you figure out the cost of re-engaging a name.

Steve

B2Bento said...

Awesome perspective! Really liked the concept of 'Emotional Unsubscribes'.

To add, most of the companies do not even validate the campaign contents through spam filters test or email clients compatibility test before sending to hundreds and thousands of people. That's another add in to the 'lost-opprtunity' cost.

Matt said...

Steve,

Can you share more details around calculating the disengagement threshold? I'm not clear on how you're defining a "non-ignored" email. Is there a certain response rate threshold you use there? And then how would you recommend segmenting people to determine the period b/t the 2 "non-ignored" emails? Different people are getting different offers, and at some point it seems like a lot of effort to look at each segment.

Love the post and the idea of adding some hard numbers to the disengagement topic!

Steven Woods said...

Matt,
that's a good question, and one that I have gotten a number of times... I think it probably warrants a separate post in order to dig in in a bit more detail.
Will try to write up some thoughts on that one.
Best,
Steve

Andy said...

It is virtually impossible to not have some emotional unsubscribes. Who has not at some point not emotionally not subscribed to a list. The key is to keep the information interesting.