Measuring email ROI

You understandably want to make sure that every marketing dollar is working for you. Done right, email has phenomenal ROI – outperforming paid search and social media by miles. Every dollar invested in email marketing yields an average return of $42.

In its simplest form, the formula for calculating ROI looks like this:

ROI = (Gained– Spent) / Spent × 100

Marketing spend would include any costs that were specific to the email marketing campaign, including money spent on the sending platform, email lists, email creation and landing pages.

It’s essential to remember that email doesn’t exist in a vacuum. It takes multiple touches – often across several channels – to create a customer.

Basic tracking tools will often attribute a lead or sale to the last touch point on the path to conversion. This can seriously underplay the contribution of the first and middle interactions.

Fortunately, more sophisticated attribution models give us a more complete understanding of how channels and campaigns work together, giving proportional credit to other interactions (including email campaigns) that played an important role in the customer journey. Find out more about the importance of sophisticated attribution models.

Another factor to consider when calculating the ROI of your email marketing is the length of your sales cycle. This is particularly true in the B2B sector, where the average sales cycle often spans six months or more. In longer sales cycles, leads need to be nurtured and nudged along until they’re ready to convert. Trying to measure ROI too soon will only show the initial impact of a campaign, not its long-term value. 

Tracking meaningful data

The ROI formula above is certainly helpful. But to really understand the value of your email marketing, you need to know what you’re trying to achieve, and you need to make sure you’re tracking the right data.

Let’s consider a simple example.

An ecommerce business spends $1000 on an email campaign that generates $500 in orders over a 3-month period. It looks as if they’ve made a loss.

But what was the goal of the campaign? To clear stock and generate immediate sales from existing clients, or to acquire new customers?

Another look at the data reveals that the campaign attracted 10 new customers during the 3-month period. They each went on to spend upwards of $1000 over the course of a year. If the goal was to acquire new customers and drive growth, the campaign was a resounding success!

The example above illustrates the importance of defining your goals and asking the right questions. It also shows how important proper tracking and reporting are. If you aren’t tracking and measuring key metrics such as the lifetime value of your customers (read more about LTV here), or the cost of acquiring customers by email vs other channels, it will be difficult to know how best to allocate your marketing budget.

Common goals and questions to ask

Now that we’ve established how important it is to keep your campaign’s objective in mind, what are some common goals and questions that can help you measure the effectiveness of your email marketing?

Email is a relationship building tool. It works alongside your other digital channels (supporting them, rather than competing against them) and is incredibly effective at attracting leads, building trust, and converting leads into loyal customers. By asking the right questions and tracking the right data, you’ll be able to accurately assess the effectiveness of your email marketing campaigns so that you can spend your marketing budget wisely.