What is The Return on Investment for Email Marketing?

email-marketing-roi

If you've been reading or listening to the podcast here at Brand Creators for any length Of time, you probably know that we are absolutely in love with email marketing, and the main reason why is the return on investment.

After looking at our lists and doing a little bit of Industry research we understand that the average return on investment is one of the highest of any marketing channel.  

While it can vary from list to list and Industry to Industry, most surveys place the return on investment for email marketing somewhere around 38 to 1 or higher

Meaning for every dollar that you invest in email marketing you will see an average of $38 returned to you in sales.

I don't know about you, but if I could put in a dollar and get $38 back I would be doing that all day long. 

Which begs the question of how does the return on investment for email marketing compared to other marketing channels?

How Does Email Marketing ROI Compare To Other Marketing Channels? 

Every channel and every company is different, but let's take a quick look at two different channels that virtually every business is using and see how the return-on-investment compares to that of email marketing.

Pay Per Click Ads VS Email Marketing ROI

Pay-per-click ads such as Google’s AdWords platform and Facebook ads fall into this category and are one of the bread and butter marketing channels used by most modern businesses.

This type of marketing is generally considered to be an extremely high return-on-investment because you're ideally targeting customers when they are ready to purchase your product and only spending money at that point.

 However, even targeting customers at the ideal point with pay-per-click comes nowhere close to the return on investment that you see from email marketing, returning an average of somewhere between 2 to 1 and 3 to 1 depending on the channel and Industry.

Google themselves has put out a few surveys in the past and came back with a return on investment number that was substantially higher (coming in at 8:1), with a few small caveats for different industries and strategies.

Compare that to 38:1 (or even higher)  from email marketing and you can see why we love it so much as a channel. 

Content Marketing VS Email Marketing ROI

The other marketing channel that you will often hear us talking about here at Brand Creators is content marketing or organic traffic.

Measuring return on investment here is slightly more complex than a paid Channel, especially because we're dealing with Evergreen traffic.

 With that being said, a few different industry surveys including one done by WebFX pegs the average return on investment for content marketing to be somewhere around $2.75 for each dollar invested in content marketing for e-commerce brands.

In my opinion, this number is very low because once you've created a piece of content it can bring search traffic forever, meaning that one-time investment will grow in terms of the amount of return over time.

 For example, you can create a piece of content today and invest $100 in that piece of content and the return on that investment will only get better as that piece of content brings in more traffic over long periods of time.

Obviously, for the sake of comparison, we need to limit the time window that we look at for measuring return on investment between these two different channels,  but the real return on investment for Content marketing is bound to be substantially higher than that figure of $2.75:1.

Even with that caveat, if you're looking for a place to invest your marketing dollars and you haven't already maxed out your email marketing, I would rather invest in the thing that's going to bring me a faster 38 to 1 return on investment until I've maximized that channel.

Now that you have an idea of how email marketing compares to a few other marketing methods, it's time to understand exactly how you can calculate your return on investment from email marketing to get a better idea of how you compared to the average.

How To Determine the ROI of YOUR Email Marketing

On its face, calculating return on investment for email marketing is fairly simple.

You need to divide the amount of money you're spending on email marketing ( making sure to include the cost of your email marketing program as well as any staff you're paying to help you write emails)  and divide that by the number of sales that it brings as a channel.

While getting the cost is easy (simply add up your expenses from the last year), understanding exactly how your emails lead to sales can be a little bit more complex.

Thankfully there are two ways that we can do this fairly easily.

We're going to explore the pros and cons of each below, just keep in mind that if you pick one you should stick to it as switching to the other method will result in a dramatically different return on investment calculation.

Platform-Based Calculations

 The first and easiest way to calculate your return on investment is to use your email marketing platform of choice to calculate for you.

 If you're using a platform like klaviyo, drip, or a variety of other platforms that are geared specifically towards e-commerce businesses you may have this ability built right in.

 If that's the case you simply need to connect your platform to your website. The process will vary slightly from platform to platform but it's usually as simple as choosing the platform that you build your website on and following a few simple instructions to connect the two.

 Once they've been connected, the platform will begin to calculate the sales generated by each email that you sent out in a pure dollar figure, essentially showing you the earnings for each email you send.

The Problem with Platform Based ROI Calculations

The biggest issue with relying on the platform base calculations is that they tend to over calculate how much revenue that they are directly responsible for.

 While  I don't have time here to explain all of the different ways that you can model attribution ( the process of deciding which marketing method gets credit for the sale), platform-based calculations Will almost always credit the platform with more sales than it should.

 For example, the popular platform drip will credit all sales related to customers who opened or clicked on an email within the 5 days before their purchase, even if they didn't end up buying directly from the email.

 While these figures are nice to have at glance, we generally don't do attribution this way and so to make it fair we're generally going to compare attribution at the link click level.

 To do this, we would need to use what's called a link base calculation.

While using link base calculations made out of tribute all of the value back to the email that it is entitled to, it is the best way to make sure that we're comparing return-on-investment across channels in the most accurate way possible.

 To use Link click-based calculations for return on investment, we need to append what is called a UTM variable to links inside of our emails.

 We don't need to dive into the full meaning of what utms are, but it's essentially a way to track how visitors came from your site when they are clicking a link outside of your website.

 Unfortunately, this isn't done regularly, which means that emails aren't tracked accurately inside of Google Analytics or whatever analytics platform it is we are using.

 To combat this, most modern email marketing platforms including convertkit have a feature that allows you to Auto append UTM variables to each and every link inside of your emails.

 Taking just a few minutes to set this up means that you'll never have to worry about attributing sales back to emails or about forgetting to tag a link again.

Once you have started using links with UTM variables, you'll be able to see all sales attributed back to email marketing inside of your Google Analytics account and you can compare it to your other marketing channels such as Facebook ads or organic traffic.

How To Improve the ROI of Your Email Marketing

If you've been reading this article and you realize that your return on investment is substantially lower than what the industry average is, you may be wondering how to improve your ROI.

It's easier than you might think and we laid It out in 3 simple steps below.

Benchmark Where You Are 

before you can start to improve, you need to understand exactly where you are and there are going to be three things that I would like you to take a look at to understand where the underlying problem is.

 The first metric you're going to want to take a look at is your open rate. If your open rate is not higher on average than at least 20%, you may want to look into if your email is being delivered and get a better idea of the different types of subject lines that lead to a higher open rate for your list.

Next, you're going to want to take a look at your click-through rate, if your click-through rate is not between 1  and 2% ( or higher)  you're going to want to do a better job of selling the click.   Essentially, you're getting people to open your emails but you're not hooking potential customers enough to get them to click through to your links.

Review What Has Worked In The Past

After you've taken a little bit to understand where you are from a metrics perspective, I would take a look at the emails that have generated the highest return-on-investment for you in the past.

Take a little bit of time to study each email or campaign and figure out what it was that you think led to that specific series of emails generating sales.

If the only emails that ever lead to sales from our list are emails announcing that we've launched a new product, we can't take that listen to Heart unless we plan on launching new products.

 We can however take a look at those emails and see what we did in those emails, such as telling a story about the product or offering some sort of deal or discount and apply that as a lesson across the rest of our email marketing.

Focus on The Desired Result

The last step in improving the return on investment for my email marketing program is by focusing on the desired result.

 Just like with things like Facebook ads, people tend to focus on the wrong metrics when it comes to email marketing.

 I would rather have a list of a hundred people that leads to thousands of dollars in sales than a list of thousands of people that leads to hundreds of dollars in sales.  

As marketers, we tend to get tied up with the number of people that we’re communicating with rather than focusing on our best customers.

 By focusing on the people who are not only opening or emails but are taking action, we can get a better understanding of what appeals to them and use those lessons to not only improve the quality of our email list, but also the quality of the emails that we send.

At the end of the day, even in 2021 and beyond email marketing is one of if not the best channels for return on your marketing dollar. 

Chris lives at the intersection of business strategy and growth tactics. Having consulted with dozens of different businesses (as well as building several of his own), he brings a unique perspective on what's working across the eCommerce world in businesses of all shapes and sizes.

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