If something does not make you money why would you spend money on it? Knowing your email marketing ROI is important because no businesses wants to be spending time and resources on activities that are not delivering additional profit to a business. Now in the case of email marketing I doubt that it would ever not deliver additional profit. Knowing the ROI of your email marketing can also help you determine if you should be putting more focus behind your email marketing campaigns, or placing that focus behind a different marketing initiative that generates a better return for your business.
The Formula To Calculate Email Marketing ROI
ROI = (sales derived from email marketing – cost of sales derived from email marketing – email marketing costs)/email marketing costs
How To Calculate
When calculating email marketing ROI I would recommend looking at sales and costs over a year minimum to potentially 2 years. An email marketing campaign will take time to build momentum as the power in email marketing is that it allows you to send marketing messages repeatedly over time to the same prospects. A prospect may not be interested in buying from you after one email, but if they have been reading your newsletter for 8 or 9 months they may warm up to your product/service and been convinced that what you offer solves a problem that they have.
In order to determine what sales are derived from your email marketing campaigns you need a system to track where your sales are coming from. For items sold online this is very easy as all you need to do is set up a specific landing page for the links in your email. Then you know that any sales from that specific landing page have come from your email marketing campaign. If your sales occur offline it can be a little more tricky. In this scenario you will need to track what is the source of all your offline sales. A great way to do this is at the point of purchase to ask any new customer how they found out about you and then record this information. For a customer of mine who sells office coffee services this is exactly what we do. For every new prospect that contacts us we ask where they found out about us and what made them want to contact us whether it be our website, a direct mail piece, our email newsletter, or whatever the source may be. This then allows us to know all sales that have been derived as a result of email marketing.
Once you have the amount of sales that have been generated over the time period you are going to analyze (again I would recommend a year or 2 years), then subtract the costs for these sales and the costs of your email marketing. The costs of your email marketing would be any staff hours assigned to run or create the campaign, any graphic design fees for your emails and any fees for your email marketing service if you use a service like Aweber or Constant Contact.
Here is what your costs might look like for the year
Staff Hours = 40 x $20.00/hour = $800
Design fees = $200 x 12 newsletters = $2,400
Email Marketing Service Provider = $19.00 x 12 = $228
Total Costs = $3,428
To continue with this example lets assume you generated an additional $20,000 in sales from your email marketing and the costs of those sales were $10,000
The ROI would then be ($20,000 - $10,000 - $3,428)/$3,428 = 192%. That means for ever dollar you spent on email marketing your business made an extra $1.92 in profit. A great return.
Once you have determined your email marketing ROI you can project how much additional profit email marketing improvements might be able to generate for your business.
For example if you have an email open rate of 10% and you are able to improve that to 20% you should be able to double the sales and profit from your email marketing. Here is a very simple example for demonstration purposes.
emails sent = 1,000
Open Rate = 10%
Emails opened = 100
Conversion rate = 2%
Customers from email marketing = 2
Total email marketing sales = $20,000
Sales per email customer = $10,000
Year 2 (after open rate improvement)
Open rate emails sent = 1,000
Open Rate = 20%
Emails opened = 200
Conversion rate = 2%
Customers from email marketing = 4
Total email marketing sales = $40,000
Sales per email customer = $10,000
Similarly if you were able to double your click through rate you should be able to at a minimum double the profit generated from your email marketing.
Looking to start an email marketing campaign for the first time? Check out our FREE Email Marketing Guide!
If you are a business that does not use email marketing I would highly recommend you take advantage of this tool. It can be a great marketing tool and is often referred to as the top return on investment marketing initiative for businesses. Some studies have indicated that for every dollar spent on email marketing it generates $50 in revenue. If you don't know where to start sign up for Aweber or Constant Contact. Both systems are low cost, easy to learn and very effective to use. I think Aweber also has an offer on right now where you can sign up for $1 for a one month trial.
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My name is Chris R. Keller. I work at Profitworks Small Business Services helping various B2B small businesses in Waterloo and Kitchener Ontario generate new customers. If you are interested in generating new customers for your B2B small businesses enter your email in the box provided below and click the "Send Me Free Updates" button.
I hope this article on the how to measure your email marketing ROI was interesting. Thanks for reading.