Calculate Your Email Marketing ROI (Formula Included)
Are you trying to measure your return on investment (ROI)? Want to increase the ROI of your email campaigns?
Tracking the ROI of your email marketing automation strategy can be difficult if you don’t know where to start. So, where do you start?
Let’s first start with the mathematical formula for ROI:
Earned – Spent / Spent = ROI as a percentage
This equation can help you track and determine your email ROI, and help answer similar ROI questions:
- What will you track and how do you determine the results?
- What is the value of an email subscriber?
- How much do I spend in time and money to use my marketing automation provider?
These are all things you need to know to understand the ROI.
For the purpose of illustrating email marketing ROI, let’s say you’re a marketer for a sports center.
Calculating email spend
This one seems simple enough, but there are other factors you need to consider when calculating the cost of email.
First, let’s look at the cost of your email service provider (ESP):
For our example, let’s say the sports center is paying $200/month for their ESP and they’re measuring email ROI for the quarter.
$200 x 3 = $600 to the ESP
Now here’s where things get tricky:
Remember those other factors we mentioned above?
You also need to factor in the amount of time spent on email as money. This is an incredibly important step that can be overlooked in ROI calculations.
That means accounting for any employees, outside agencies, or service packages from your ESP.
You spend about two hours per week, or 26 hours for the entire quarter, on email marketing campaigns.
To calculate your effective hourly rate we use this equation:
(annual salary / 2,080 working hours per year) x time spent on email
You earn $49,000/year; that puts your effective hourly rate at $23.56/hour.
If you spend 26 hours per quarter on email, the sports center is spending $612.50 in time on email.
Remember what they’re spending per quarter for their ESP? $600.
$612.50 + $600 = $1,212.50 spent on email for the quarter
But then there’s also email revenue to consider.
Calculating email revenue
First of all, the easiest way to track ROI is if you are selling something online.
Delivra integrates with Google Analytics, offering the ability to track the total purchased amount from a single email.
This data can be aggregated across a campaign or a year of time to leverage how much your email program is pulling in.
While that is the simplest form, not every email program is directly selling products in an email. Some are selling services or subscriptions, or maybe nothing at all. Maybe they are trying to get donations.
So, let’s continue with our example, which is a subscription-based product:
For the sports center, their monthly online membership is worth $125/month.
They know if they can get someone to walk into the center, they have an 80% close rate.
Four out of five people that complete a free trial will become a member, and they know their average member uses the center for 15 months.
We now can calculate the value of getting someone into the center:
15 months x $125/month x .8 conversion rate = $1,500
The sports center also has a “Sign Up for a Free Trial Pass” form on their website.
They know that anyone that submits the form for a free trial pass has a 40% probability of coming to the center to claim their free pass.
We can also calculate the value of getting someone to submit the website form:
$1,500 value x .4 = $600
The sports center sets goal values to the website form in Google Analytics and tracks the impact of email on overall conversion for the quarter.
At the end of the quarter, you can attribute email success to 18 direct or last interaction conversions worth $6,750 and another three assisted conversions worth $1,125 for a total of $7,875 for the quarter.
Now on to the final piece of the email marketing ROI pie:
Calculating email ROI
Now we have all of the numbers needed to calculate the email ROI for the sports center.
Earned – Spent / Spent = ROI as a percentage
$7,875 – $1,212.50 / $1,212.50 = 5.495
That’s an email marketing ROI of 549.5%.
To put that back into dollars, for every dollar the sports center spends on email marketing, they earn it back plus an additional $5.49.
Now you have something to start talking about when you are asked what your email program is worth.
Knowing and understanding your email marketing ROI will help justify your sends.
You will also learn quickly that by segmenting your list and targeting email subscribers that have a higher probability of becoming members, you will cut your investment and increase your ROI.
According to a survey by the Direct Marketing Association and Demand Metric, the median email marketing ROI is 122%.
That’s 4x higher than social media, paid search, direct mail, and other marketing channels.
There are plenty of other stats that prove just how valuable email marketing is to ROI.
But how can you optimize your email marketing efforts to maximize ROI?
We dive into that next:
Get more ROI from email marketing
Knowing your email marketing ROI isn’t enough for the results-driven marketer.
You want to increase it.
You’re looking at your reporting tools and squinting at spreadsheets trying to measure what works.
Email marketing may be one of the oldest digital marketing strategies, but it remains a viable means of increasing leads, traffic, and revenues.
But despite its long-standing application, there are right and wrong ways to implement email marketing into your overall strategy.
It’s easy to fall short of the potential ROI this type of campaign can provide your business.
In many cases, businesses that use email marketing are likely to overlook simple ways they can improve the efficacy of their marketing strategy.
It’s important to make sure your marketing efforts are mindful of email marketing best practices.
Here are six email marketing best practices to improve the performance of your email marketing ROI:
1) Increase email open rates with incentives
The easiest way to encourage email readership is to offer enticements that pique the interest of recipients.
For example, offering discounts, free items or other special, limited-time offers can motivate email recipients to click and read.
Here’s a great example from Philosophy:
Source: Campaign Monitor
Philosophy is offering a free gift for purchasing $75 of their products at David Jones. Emails like these are meant to encourage people to purchase products at in-store locations.
Email open rates are vital to the success of an email marketing strategy, so always look for ways to improve their performance and you’ll see the impact with your ROI.
2) Simplify your email design
Busy emails can often disorient recipients and prompt them to abandon the message entirely.
No one is going to buy from an email that they can’t even look at.
Simplicity in email design will keep your message clear and will appeal to the eye of your reader.
The fewer typefaces you employ, the better—two tends to be a good number.
And don’t ever send out an email more than 650 pixels wide.
When you do, readers have to scroll to the sides—but few actually will, truncating the right side of your message and losing potential leads.
3) Construct your email according to reader appeal
There’s plenty of data out regarding which types of formatting, structure, and layout are most effective in connecting with readers of an email campaign.
Make sure the main message of your email is placed high in the body, along with a call to action.
Additionally, your company’s logo will be best remembered by placing it at the upper-left-hand corner of the email.
Research shows this is where an email recipient’s eyes gravitate to most frequently.
Since email marketing is about creating brand awareness and remaining top-of-mind with those organizations, your logo’s visibility is just as important as the content of the email itself.
4) Implement autoresponders
The use of autoresponders can decrease time spent managing email campaigns and ensure emails are fired off efficiently over time, improving lead qualification and other efforts.
Just make sure these emails don’t overwhelm the consumer, and they provide them with a reward for remaining opted-in to your campaign.
It’s also good practice to provide a contact email in autoresponder email messages. No one likes to try to reply to a “no reply” email, and no matter what you write in the email field, someone will reply to that email. You don’t want to lose that conversation.
5) Keep subjects short and sweet
Under 50 characters is best.
Get to the point and convey a sense of urgency to motivate readers to click on the email and take action.
By remaining mindful of these email marketing best practices, you can be sure your campaigns will be effective for your business.
6) Try A/B testing to send the most effective emails
A/B testing is a simple, yet effective email marketing tool.
You’ll send two different emails to two groups of people and see which email performs better. It’s that simple.
Once you know which email performs better, you can either continue testing other aspects of the email or send that out to your entire email list. It’s up to you, though more robust A/B testing leads to better click-through rates.
After you’ve nailed down a solid email strategy with A/B testing, it’s time to implement your strategy full-scale.
Get it done
Email marketing remains a low-cost choice for brands to build relationships, drive engagement, and increase revenue.
Certainly, deliverability remains a challenge for many, but as result-driven marketers make the shift from batch-and-blast to highly personalized mailings, the future looks to be bright for email as a marketing channel.
This was a pretty comprehensive post, so let’s do a quick review. First, let’s go back over the ROI formula:
Earned – Spent / Spent = ROI as a percentage
You can use this formula to see the value of your investments in your email campaigns. It’s a handy formula to know and a practical one to have laying around.
Also, a quick overview of the six tips for improving your email marketing ROI:
- Increase email open rates with incentives
- Simplify your email design
- Construct your email according to reader appeal
- Implement autoresponders
- Keep subjects short and sweet
- Try A/B testing to send the most effective emails
With these easy tips, you should be able to not only calculate your ROI but increase your email marketing ROI with ease.
Are you struggling to find new ways to leverage email to drive engagement and increase revenue?