First of all, why calculate ROI? No strategy can be successful, without analysing its costs and earnings. Email Marketing is famous for its high return on investment and understanding this value can motivate any future investment.
Having specific information about email campaigns, helps to outline its strengths and weaknesses in any online marketing program.
The calculation of ROI will reveal you exactly how the acquisition cost per contact is made, like each campaign’s production costs reported to sales.
Let’s start from the general mathematical ROI formula, a percentage value that calculates the ratio between costs and net profits:
ROI = (Revenue – Cost) / Cost x 100
A 3800% ROI, for example, indicates that for each $ 1 spent, are obtained $ 38 (have you read that this is the Email Marketing ROI calculated by a 2015 DMA research?).
Regarding Email Marketing the general formula is:
Email Marketing ROI = (revenue generated from email marketing – sale costs generated from email marketing – email marketing action cost)
/ marketing costs x 100
How to calculate costs
The email is known as an economic marketing channel, but still requires a small starting investment. One of the best investments you can do for your DEM campaign is to rent a professional submission platform, that compared to traditional email clients, offers advantages both in deliverability and preparation of customized and advanced messages, statistics included. Remember to multiply this cost for the measurement period.
Even time has its cost, either yours or that of your employees involved in the creation and delivery of the message [(annual / per working hours salary) x hours of work], either that necessary to acquire a prospect database. Natural contact acquisition campaigns allow to obtain high performance, but require time.
That’s why the acquisition of an already profiled contact database, can affect the start of a good DEM. If it’s true that quality leads have a certain cost, it’s also true that this cost can be reduced (initially or periodically) by getting quickly profiled and legal contacts.
How to calculate the revenue
When analysing ROI, you should consider a period of costs and revenues of at least 6 months (preferably 12). An Email Marketing campaign is normally composed of two dynamics:
1. The impulse:
PRO: fast and profitably, produces quickly the desired action
CONS: the result can vanish as quickly as it’s been produced
2. The impression:
PRO: generates a long term loyalty and a positive receptivity regarding the product or service.
CONS: a more gradual realization
Even in further subjects, a DEM campaign can generate more slowly the impulse that leads to conversion. Once the contact has been acquired, there can be sent more messages without raising the action’s cost. Readers may not be interested in the first product, but may be interested on a further one, as long as they remain subscribed to the newsletter.
In order to determine which sales were generated from email marketing campaigns, you need to have a system that analyzes the source of clicks and conversions. For online purchases this is very simple and the best results are obtained by combining the statistics provided by the sending platform to those of Google Analytics and any internal CRM. For offline purchases you can send to your customers convertible coupons always asking them where they come from.
Once you get the results, the application formula is very linear. Of course, in marketing a formula cannot be general and the result should be geared depending on the prospects (for example, the agreement with a reseller, should be evaluated based on the perspective of the generated invoice value).
If you haven’t developed yet any Email campaign for your company, you should, because now you have the most important measuring tools of a DEM campaign. You’ll be surprised by the first conversion rate.CREATE YOUR DATABASE FOR EMAIL MARKETING