How to Calculate Email Marketing ROI
No matter the asset, no company wants to invest if they don’t see a positive ROI (return on investment). Knowing the value of something is even more difficult if a company struggles with calculations.
This has long been a burden for marketers.
At times, it can be difficult to calculate the ROI of content marketing or even PPC ads. Perhaps the marketing channel that proves most difficult to measure, however, is email.
This is especially frustrating since email almost always offers the best returns compared to other marketing channels.
Fortunately, there are actually some very simple steps to follow when calculating ROI. You can prove the ROI of your marketing efforts and hopefully grow your marketing budget.
How to calculate email marketing ROI in 3 steps
First let’s begin with a simple formula for calculating ROI:
Returns – Costs = Return on Investment
Of course, if it was always this simple, measuring the ROI of email marketing wouldn’t be such a common challenge.
1. Considering your costs
Instead, you’ll need to begin by looking at your costs. What costs are involved with email marketing?
- Email service provider – It’s impossible to run a successful email marketing campaign without an email service provider, so let’s start with this cost. Just be sure you look at the cost for the relevant timeframe. For example, if you’re trying to determine the ROI for the month, don’t use the cost of your provider for an entire year.
- Amount of time spent on campaigns – This can be a tough one, but do your best to figure out how much your company is spending on employees who work on these campaigns. For example, if someone is paid $1,000/week and they spend 10 hours/week on emails, your company is spending $250 every week on campaigns.
- Templates, images, and other add-ons – There is no shortage of ways you can customize your emails, so be sure to consider the related costs, too. Are you paying for templates? Do you buy images for each message? These costs must be factored into your ROI, as well.
2. Reviewing your revenue
The next step is a little more fun: Let’s look at how much your email marketing campaigns contribute to your company’s revenue streams.
For many of you, this step will be pretty straightforward. You can track how many emails are opened, how many CTAs are followed (i.e. the clickthrough rate), and how many of these emails end in purchases. Google Analytics makes this especially easy to do.
Then, all you need to do is add up those transactions and you’re left with your revenue. Subtract the costs, divide by those costs, and you have your email marketing ROI.
Now, for other companies, this is going to be just slightly more complicated.
For example, your company might sell memberships. Maybe you handle marketing for a chain of gyms. In that case, you may be able to calculate your ROI by tracking how many people sign up for memberships through an email campaign.
Usually, that’s now how members join, though. First, they sign up for a free trial. Only after it ends do they decide whether or not they’ll keep going.
In a situation like this, you have to look at a few other factors.
First, how many free memberships turn into paid memberships? Let’s say it’s every three-out-of-five and that each membership is worth $100/month to the gym.
Second, how long does someone tend to remain a member? We’ll say that the average for this gym is 12 months.
Third, how big is the list? Let’s say the campaign is targeting 400 subscribers.
3. Calculate your ROI
With these numbers established, we now know how to calculate email marketing ROI for this gym’s free trial membership program:
12 months x $100/month x 400 recipients x .6 conversions = $288,000
So, every recipient who clicks through to sign up for a free trial membership is worth $720 to the gym. Because of the conversion rate, that means 240 people will do so, giving the gym $288,000 for that year.
Therefore, if your monthly costs for your email campaigns were $2,400 (platform plus employee labor) and you’re able to convert 240 recipients that month, your ROI would look like:
Your campaign has achieved an impressive 119x ROI!
As we already touched on, if you’re selling a product or service where someone purchases by clicking through your email, calculating the ROI is even easier.
4 Metrics that help calculate email marketing ROI
Understanding how to calculate email marketing ROI may help you curry favor at your company.
However, you don’t have to stop at the basics.
Here are four other metrics that are worth monitoring as they’ll further help you make the case for the benefits of email marketing.
1. Lifetime value of client
Once a recipient clicks-through and become a customer, they may not open as many emails going forward. However, this doesn’t mean they don’t continue to add to your campaign’s ROI. That’s why it’s a good idea to track the lifetime value of each of your customers.
By doing so, you can find how much profit they contribute to your company over time–long after that initial click.
We touched on this concept above when we reviewed the ROI for a gym membership, but the lifetime value of a client is just as important for online stores and other companies that sell products and services.
If an email turned a recipient into a customer, that campaign deserves credit for all the money they spend going forward.
2. Cost per lead
When we covered costs earlier, we did so under the assumption that you were earning all of yours through organic traffic and other “free” methods.
Of course, many companies grow their lists through Facebook ads, Google Ads, or other PPC methods. Some still buy whole lists of subscribers.
In cases like these, there is always some cost per lead that needs to be calculated.
Obviously, this number is going to impact your email marketing ROI. The more you’re spending to generate every lead–or “subscriber” in this case–the more your ROI decreases.
Alternatively, the more you can work on that number–finding cost-effective ways to generate leads–the more your ROI will grow in a positive direction.
Be sure to check the number of subscribers you have every month if you’re paying for any of them. Also, keep track of how many you paid for and which were organic, as this will affect the ultimate ROI calculation.
3. List growth rate
While the growth of your list doesn’t directly contribute to its current ROI, it’s still a very helpful KPI when making the case for email marketing.
Keep track of how your list grows month-after-month and you’ll be able to estimate what your future conversions will look like.
During the first few months of your initial campaign, growth and conversions may look modest. However, if you can show what the current trend promises to deliver down the road, you’ll have an easier time winning over management.
A subset of this category is the sharing/forwarding rate that results in new subscribers. Earning them from a landing page is still significant, but it’s also helpful to see what types of messages turn your recipients into marketers by forwarding them to others.
4. Conversions by segment
Once you have a large enough number of recipients on your list, it becomes important that you introduce segmentation.
In short, you want to recognize different categories of recipients.
For example, if your company sells products to dog owners, your list would probably be comprised of people who own large, medium, and small dogs. Given that the size of their dogs would affect what products owners buy, it might make sense to segment your list so you’re sending different emails to each category.
Properly segmenting your email list is one of the easiest ways to immediately increase its overall ROI. As time goes on, continue segmenting, so each email you send is precision-aimed at a specific target.
Another big benefit of segmentation is that you’ll have multiple ROIs to report on. This is helpful if one segment is bringing down the average. That total ROI may scare off support for your ongoing efforts until you can prove that certain segments are actually doing much better.
Of course, segmented ROIs will also go a long way toward helping you improve those categories that are performing the worst, meaning more overall conversions.
Now you know how to calculate email marketing ROI. Best of all? It’s actually fairly easy.
So, it shouldn’t be too much of a challenge to make these calculations on a regular basis. Once every few months is good. Once a month is even better.
While email marketing is extremely powerful, it works best when someone is constantly monitoring it and making changes the moment they’re necessary. This might be when a new segment is discovered or when a large exodus of subscribers occurs.
Simply put, the more you monitor your email marketing ROI, the easier it will be to grow.