The ROI for email marketing is said to be 40 to 1. This means that for every $1 spent, $40 is earned.
I’ve noticed many companies don’t know how to calculate their email marketing ROI, so let’s start with that.
How to Calculate Your Email Marketing ROI
Gather Expenses
Let’s start by gathering all of the expenses for email marketing. Here are typical email marketing expenses:
- Email Marketing Service Provider
- Email Marketing Management Team (Designer, Copywriter, Implementor)
Depending on your list size and team size, your expenses can vary. Most email marketing services cost anywhere between:
- Free and $30 to handle up to 2,500 subscribers.
- $40 to $100 to handle up to 5,000 subscribers
- $100 to $500 to handle up to 50,000 – 100,000 subscribers.
When it comes to your team, if you are a small business, it may be You who is doing it all or, a dedicated person who handles your marketing. If it’s you, try to calculate the time you spend creating, managing, and executing your email marketing efforts. If you have a dedicated person, simply add their salary to the cost of your email marketing service. The typical expense for an email marketing manager can go anywhere between $500 – $5,000 a month. Depending on the complexity and hours needed.
Medium to large companies, normally have a full team to help with this. If you are managing a team, make sure to include everyone who is involved in the email marketing creation process. These can be Designers, Copywriters, Implementors, Integrators, and Developers. It’s important to include everyone involved for an accurate ROI calculation.
If the people involved in your email marketing process also help with other marketing activities, (eg. Website copywriter also creates copy for emails) and you want to get really granular, try to calculate the percentage of their time spent on email. I don’t suggest doing this last part unless you really have to. The reason being is that the efforts made on the site will also influence your email marketing ROI.
Calculate Revenue
Calculating Email Marketing ROI is not rocket science but it’s multidimensional. You can simply track direct sales from email, but what about engagement and support from other marketing channels. Can you add value to leading someone to your website? Absolutely!
Let’s start with a standard ROI Calculation:
Email Marketing ROI = (Revenue – Expenses) / Expenses * 100
Example Email Marketing ROI Calculation
Let’s say last year you generated $50,000 through email marketing, (we will explain how to track email revenue below). You also spent $840/year for your email marketing service and $18,000/year on your email marketing team.
ROI = ($50,000 – $18,840) / $18,840 * 100
Email Marketing ROI = 165%
This example is for direct sales, but what about website traffic and lead generation?
Additional Email Marketing ROI Calculations
As mentioned earlier, email marketing is multidimensional. You can track direct sales, lead generation, and website engagement. Here are a few ways to track additional value from your email marketing.
- Lead Generation & Website Engagement ROI: How much does it normally cost your company to acquire a lead? For example, how much does it cost your company to generate a lead or website visitors through Social Media? Or a Google Ad? You can set this cost as the lead generation expense benchmark. From here, you know the rest of the formula. (Eg. If your average cost to get someone to your website is $1, and your average cost to get a lead is $15, apply those values when calculating the number of leads and website visitors your email marketing generated.)
- Life Time Value & Customer Retention: Don’t miss out on tracking this aspect of your marketing efforts, even if you find it a bit more challenging. Some email marketing services like Klaviyo offer a metric called Subscriber Value. This simply divides the number of sales from email by the number of subscribers you have. Pay attention to this number and try to set a standard for all subscribers to be at.
- New Customers Vs. Returning: When calculating your email marketing ROI I highly suggest keeping 3 different numbers. New Customers, Returning Customers, and the combination of both. The reason behind this is because your other marketing channels probably helped a lot more to attract new customers while email marketing plays a bigger role in creating returning customers. When calculating New Customer ROI make sure to include all touchpoints, (Social Media Engagement, Ads, Organic search, etc.)
Other Ways To Monetize Your Email Marketing
Sell Your List of Subscribers: Whatever you do, please DON’T EVER sell your list of customers. It’s totally bad practice in the eyes of email marketing. But, you can offer other companies and brands to prepare specials and offers for you to send to your own subscribers. Under this example, you can have your partner create an email that you send on their behalf. Always make sure to include your branding so your subscribers recognize who the email is coming from. For this practice, you can charge the 3rd party company by the number of subscribers you send to, number of opens, clicks, or overall sales.
Offer An Ad In Your Newsletter: Aren’t newsletters outdated? The name definitely is but its effectiveness isn’t. Newsletters are a great way to send out any kind of update. From product releases to blog updates. Some businesses use these emails to generate more revenue for their business by including 3rd party offers in them. Similar to the point above, you can offer this ad space in your emails by the number of opens, clicks, or overall purchases.
The main thing I want to say about both of these strategies is to make sure the ads you include are relevant to your business and add value to your subscribers. Your list of subscribers is your business’s most valuable asset. Don’t disrespect them by sending random ads or offers from 3rd party companies if it’s not a good fit.
Let's Compare ROI
Now that we know how to calculate ROI from Email Marketing, let’s compare to other marketing channels.
Using the same formula from above, try to calculate your Ad expense, SEO Expense, or any other marketing channel to your email marketing.
You will quickly notice you’ve been neglecting your top-performing channel because you may feel that email is outdated or not as effective.
The cost to send 1 email is insignificant. Like seriously, nothing. From the prices above, let’s say you have 2,500 subscribers, paying $30 a month, which comes out to $0.012 per subscriber. If you have unlimited sending, this number gets lowered even more.
Now how much is your retargeting campaign costing you on Facebook or Google Ads? Probably close to $1 per click back to your site. That’s 100x more than email marketing!
The main idea here isn’t to stop your other marketing channels but to focus more on your email marketing and automation. To lean how to combine your social media strategies with email, click here.
Is Your Email Marketing ROI Low?
Focus on your automations first. When working with new businesses the first thing we do is ensure they have these 5 automations:
- Welcome automation (Anyone who visits the website and signs up, receives the welcome email that explains who you are and what you do)
- Nurturing Campaign (3 – 10 emails that are focused on educating and earning the subscribers trust)
- Sales Campaign (3 – 6 emails focused on top items and sellers)
- Browse & Cart abandonment (Emails triggered after a potential customer leaves your store/website without completing a purchase.)
- Reviews and Testimonials (When a purchase is made, it’s important to get reviews and testimonials.)
These automations will become the bloodline of your email marketing efforts as they follow your customer sales cycle to send the right email to the proper subscriber at the right time. Once you build these out, you’ll quickly find new areas to build off of as well.
With the 5 automations mentioned above, we tend. to generate at least 20% of all business sales. And that’s just. the tip of the iceberg.
Want to learn more about these automations? You can take our course here or contact us for a free consultation.
