Email Marketing Analysis - Understanding ROI

When the figures from your campaigns start coming back, it is inevitable that ROI discussion will be a central topic, particularly with senior management. While it would be foolish to diminish the importance of ROI (particularly with those who are providing budget for your campaigns!), nevertheless the merits of a pure ROI focus is a topic of debate right now. This is particularly the case as we see greater convergence of email marketing with other channels such as social media, which makes it that bit harder to assess its true independent impact on sales and revenue.

In the blog "Email Marketing Reports", Kevin Hillstrom, CEO of Minethatdata discusses the often problematical use of ROI as a definitive metric. Consider the following hypotheses:

Email marketing ROI is based on low cost, not revenue generation

While ROI on email marketing can be high, this assumption is based primarily on the low set-up and execution cost inherent in the technology, rather than on revenue generation through subsequent product or service sales.

"For instance, in non-branded paid search, you may generate 100 clicks, spending $50, to generate one order for $100. In catalog marketing, you may spend $50 sending catalogs to generate two orders for $100. In email marketing, you may spend a dollar sending 700 emails to generate one order for $100."

In this instance email does have clearly the best ROI; however that's based purely on the low cost base.

Consider the relative value of email marketing

The relative value of email marketing changes when you look at other measures of financial success. Taking the above example a stage further:

"Catalog marketing would generate $1,400 sales for every 700 catalogs mailed. Non-branded paid search would generate $700 for every seven hundred clicks. Email marketing would generate $100 for every 700 emails sent."

If we take the above into account, email marketing is the worst performer. It is therefore fair to say that a great ROI does not necessarily correspond to significant revenue growth for the business.

The "best" channel depends on your goals.

It is clear that, as mentioned in previous blogs on "email marketing strategy", that the best marketing channel and metrics for analysis, depends on your company goals. In the above example, catalogue generated a lower campaign ROI, yet generated more profit on paper. Conversely, email had the best ROI but limited potential in this scenario to drive huge sales and profit increases.

The conclusion reached by much of the best practice research on email marketing, is that unfortunately many businesses are still willing to accept low email conversion rates as long as the ROI is "proven". This will have to change if you are to realise the longer term benefits of effective and profitable email marketing.

....and finally....

In the final phase of this (long-running) series on email marketing, we turn towards the product - Sage E-marketing for Sage CRM.

If you are a newcomer to CRM in general, Sage CRM in particular, or the email marketing functionality, you may find the next set of blogs useful. These will provide a high level overview of the functionality, with explanation of the various screens you will see in front of you. Those of you familiar with the functionality may wish to skip these blogs.

Thereafter, and to conclude these blogs as a complete series, we will do a detailed analysis of the demo story that comes out-of-the-box. The purpose here will be to give you, as a user or interested observer, some context and narrative using sample data.