Commentary

Driving Incremental Revenue

Great theory and best practices will get you to the meeting table, yet when it comes down to measurement and performance we all have to answer to the bottom line: incremental revenue and profit. While email offers a return on investment of 40:1 (depending on which analyst you read), how do we represent incremental gains to the business and attribute these to the email channel?


I prefer to answer this never-ending question with a few more questions and observations:


1.    Acquisition of new customers is easy but does it mean the same to everyone?  How do you represent an acquisition as an incremental gain outside of saying "when my list grows, I sell more"? What if it was a simple opt-in, rather than a purchase?  Is acquisition defined as a single first purchase, or total purchase value over a given period of time, or an opt-in and then a conversion? What if a customer purchased something and signed up for your newsletter, which you are monetizing through ads -- do you add this incremental value to your customer value? How does this revenue value get represented in a lifetime value (LTV) equation?

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2.    Re-activating legacy customers. These are your lapsed buyers; the ones who never purchased anything from you or have not purchased in a given period of time. This is probably the least utilized source of incremental revenues, because most companies don't have the time to focus on non-responsive customer sets - no time to create new programs, strategy, or creative separate from their primary revenue-driving database. However, if you have been managing aggressive list growth for more than five years, I bet you have a lapsed customer file that is at least 50% the size of your existing customer file, if not larger. So, why not maximize these people? Some are of the opinion that if they have been off your list for a certain period of time, you should forget about them. I'm of the opinion that there are many business values which email can drive, including commerce value and advertising value, and there are several ways to re-activate legacy customers or subscribers.


3.    Monetize the newsletter crowd. There is value in eyeballs and impressions and you should build instruments to represent this value. If you create a new email product (e.g., a newsletter) that supports a product line and you monetize it through online ads, the revenues associated with this and the growth of this revenue should increase proportionately. If your list attrition runs 30% annually and growth is net 1-3% monthly, how are you showing these gains? When the list reaches a meaningful size, many diversify their email portfolio with new, more targeted content that sells at a higher premium. This, traditionally has been reserved for publishers, but we are ALL PUBLISHERS today- some just monetize their business better. In my next article I'll write more on this monetization process and how you can manage this without causing strife internally when you bring up the subject. Last thing your senior people want is you selling ad space without some controls, especially when they can't associate it to LTV or high-profile client value.


4.    In cross-sell and upsell it can be hard to show true incremental gains. While you can represent gains by product line attribution, without a pretty healthy analytics team this can be difficult to represent in terms of incremental revenue to the business, outside of total sales. This should be broken down by crossover. In some cases new products sales may lower the LTV of certain customer segments if you were heavily discounting purchases in lower margin products. Remember LTV is an accrued profitability equation, not simply a sales equation. Showing incremental value to the business should reflect some explanation of the value of cross-sell, upsell and the profit value and sustainability of revenue across existing customers and new products. It can get tricky, so watch the margins and discounting. Increased sales may be more costly than you think.


Incrementality is the game in marketing and in the trying times which most are predicting lie ahead (I can only image what the holiday season will bring for retail), we'd all better be creative in showing the incremental value of our efforts.

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