Last week I discussed the value of an e-mail address to your business. This week, with the help of one of my guru analysts, I will share an elegant formula to help you establish the financial value of an e-mail subscriber over a given period.
Most marketers have moved beyond basic e-mail analytics, and now focus on process-oriented metrics such as conversion rates, ROI, revenue per e-mail, segment and ISP performance variations. These are important metrics, but they tend to force us into a campaign-level mindset. As marketers we need to look beyond campaigns and take a longer-term, customer-focused view. Consumers opt in to receive a flow of communications from you, and tend to view your messages in the aggregate. This model seeks to do the same. It presents an easy-to-digest numerical value for those who do not have a granular view of e-mail marketing (think of your vice president of marketing, who needs snapshots of all channels).
This is ultimately an analytical process because it incorporates results from various campaigns. While there are several ROI models, we felt this one would be most generally useful as it contains a direct mail cost variable as a factor.
Here's the basic model:
Annual value of an e-mail subscriber =
[(Average incremental revenue from each e-mail) x (Number of annual e-mail campaigns)] + [(Cost savings versus direct mail) x (Number of annual DM campaigns displaced)]
To generate a proxy for the total value of your e-mail list, you can multiply the per-subscriber dollar amount by the total number of active subscribers.
There are a few subtleties to the model that are important to note:1. We're considering incremental revenue generated by e-mail relative to another channel, not just total e-mail revenue.
Example: We'll assume a marketer sends four campaigns a year, realizing an average incremental revenue of $1.45 per campaign. Further, the marketer uses e-mail twice a year for time-sensitive news, saving 30 cents per piece by sending e-mail rather than direct mail. The basic value equation is:
Value of an e-mail subscriber = ($1.45 x 4) + ($0.30 x 2) = $6.40 per active subscriber per year.
List value = 1 million active subscribers x $6.40 per
subscriber = $6.4 million.
Things to keep in mind. First, the value is an average across all active subscribers. Some segments will have greater value, and the same methodology can be applied to determine the value of those segments. Second, the low cost of e-mail will likely lead someone in the organization to say "We just need to e-mail more often!" Don't fall for that trap, as too much frequency and message irrelevance can quickly drop your subscriber value. Third, this value is not meant to convey that direct mail should be dumped. It's still a critical channel for acquisition, and reaching lapsed or e-mail subscribers who wouldn't otherwise be reached.
One financial model doesn't suit all. There are numerous books about statistical models. Find one that is relevant to your business, adapt it to your e-mail program, and then live and breathe it.