E-mail Frequency: Protecting Your Long-term Profits from Short-term Revenue

What happens to revenue from sales when you increase the frequency of your promotional e-mails to customers? Answer: it usually goes up, which is why some retailers are sending e-mails to their customers close to 365 days a year. Don’t believe it? According to Internet Retailer, 60% of online retailers conduct between 1 and 3 campaigns each month, while 32.8% coordinate between 4 and 15 campaigns each month. That means 7.2% of online retailers conduct more than 15 campaigns each month.

Is it safe to assume that e-mail revenue increases with campaign frequency? If that’s true, why don’t all retailers mail their customers every day? There are several reasons, but there is one that is chief among them: while revenue goes up with e-mail frequency, profits typically come down. Let’s explore why that is.

On any given day, most individual consumers are either in a buying mood or they are not. If you hit a consumer with the right offer at the right time, she may make an immediate purchase. But if you hit her with an offer at the wrong time, she may just delete your e-mail. If you hit her every single day, she may become overwhelmed and choose to unsubscribe. An acceptable offer becomes an unwelcome nuisance when it shows up in the inbox too often.

This is what many online retailers have discovered. To illustrate this point, let’s review the experiences of a retailer who found out, rather unhappily, that more frequent e-mails do not necessarily produce higher profits. What we are discussing here is a real business case; however, we have modified the numbers to protect the retailer’s identity. For ease of reference we will call this fictional retailer Fashion Outlet.

The results herein are akin to those produced by the retailer’s e-mail program.  Fashion Outlet was originally sending five e-mails per month to a base of approximately 500,000 customers, all of whom provided the retailer with permission to use their e-mail addresses. Fashion Outlet used the approved double-opt-in acquisition system: when the retailer acquired a new customer’s e-mail address, the customer was sent an e-mail asking her to confirm her willingness to receive Fashion Outlet’s e-mail. So far, so good.

Fashion Outlet was generating roughly $6.5 million for the year. After deducting the cost of replacing lost customers, the loss of revenue from those customers, the cost of goods sold, and the cost of sending e-mails, the retailer achieved a gross profit of about $1.2 million per year or 19.1% – a great example of how well e-mail marketing can work.

Fashion Outlet acquired replacement customers through mass-market advertising, viral marketing, and banner ads. Altogether, the retailer’s figures reflected the following:

• Cost of approximately $14.00 to acquire a new permission-based e-mail address
• Loss of about 68,400 customers in a year, which then needed to be replaced
• Average customer contribution of $13.17 to the retailer’s annual revenue

What happens to revenue from sales when you increase the frequency of your promotional e-mails to customers? Answer: it usually goes up, which is why some retailers are sending e-mails to their customers close to 365 days a year. Don’t believe it? According to Internet Retailer, 60% of online retailers conduct between 1 and 3 campaigns each month, while 32.8% coordinate between 4 and 15 campaigns each month. That means 7.2% of online retailers conduct more than 15 campaigns each month.

Is it safe to assume that e-mail revenue increases with campaign frequency? If that’s true, why don’t all retailers mail their customers every day? There are several reasons, but there is one that is chief among them: while revenue goes up with e-mail frequency, profits typically come down. Let’s explore why that is.

On any given day, most individual consumers are either in a buying mood or they are not. If you hit a consumer with the right offer at the right time, she may make an immediate purchase. But if you hit her with an offer at the wrong time, she may just delete your e-mail. If you hit her every single day, she may become overwhelmed and choose to unsubscribe. An acceptable offer becomes an unwelcome nuisance when it shows up in the inbox too often.

This is what many online retailers have discovered. To illustrate this point, let’s review the experiences of a retailer who found out, rather unhappily, that more frequent e-mails do not necessarily produce higher profits. What we are discussing here is a real business case; however, we have modified the numbers to protect the retailer’s identity. For ease of reference we will call this fictional retailer Fashion Outlet.

The results herein are akin to those produced by the retailer’s e-mail program.  Fashion Outlet was originally sending five e-mails per month to a base of approximately 500,000 customers, all of whom provided the retailer with permission to use their e-mail addresses. Fashion Outlet used the approved double-opt-in acquisition system: when the retailer acquired a new customer’s e-mail address, the customer was sent an e-mail asking her to confirm her willingness to receive Fashion Outlet’s e-mail. So far, so good.

Fashion Outlet was generating roughly $6.5 million for the year. After deducting the cost of replacing lost customers, the loss of revenue from those customers, the cost of goods sold, and the cost of sending e-mails, the retailer achieved a gross profit of about $1.2 million per year or 19.1% – a great example of how well e-mail marketing can work.

Fashion Outlet acquired replacement customers through mass-market advertising, viral marketing, and banner ads. Altogether, the retailer’s figures reflected the following:

• Cost of approximately $14.00 to acquire a new permission-based e-mail address
• Loss of about 68,400 customers in a year, which then needed to be replaced
• Average customer contribution of $13.17 to the retailer’s annual revenue

That means every time a customer was lost from the mailing list, the retailer also lost $13.17 in revenue – and it cost another $14 to recruit a replacement.

The clever folks in Fashion Outlet’s marketing department reasoned that, if they could get $6.5 million in sales by sending customers five e-mails per month, it should be possible to increase that revenue significantly by sending them as many as 15 e-mails per month – one every other day. They were right, as you can see from these results:

• Sales increased by more than $14 million
• Unique buyers increased from 23,466 to 36,553
• Orders from unique buyers increased from 12,825 to 44,902

What they had not counted on, however, was that the increased frequency would also produce some negative results:

• Unsubscribe rate increased from 0.74% to 1.87% per month
• Undeliverable rate increased from 0.04% to 1.98% per month
• Annual customer loss increased from 13.68% to 46.20%

On top of all this, to maintain a database of 500,000 customers, Fashion Outlet needed to recruit 231,000 customers per year instead of 68,400 – once again at a net cost of about $14 per customer. Plus, the shift to 15 e-mails per month reduced the retailer’s overall profits by about $887,807, and profit from operations dropped from 19.1% to 2.6%.

From this chart, we can provide some answers as to why the profits did not go up.  For example, consumers have a tolerance level for promotional e-mails. One e-mail every other day exceeded the tolerance level of some 150,000 subscribers. Many unsubscribed, and many more became undeliverable through various methods, including putting the retailer on their spam list.

So what can we conclude from this?  If you change the frequency of your e-mails, be sure to test the increased frequency on a small part of your total customer base first. Had Fashion Outlet done this, the retailer would have learned that unsubscribe and undeliverable rates would go up so much that their gross profits would actually go down.

A possible lesson from this case: give customers who want to unsubscribe the option of receiving the e-mails at a lower frequency rate. It is possible that many of the 231,000 who left would have stayed had they been given the option of continuing at the five e-mails per month rate.

Gearing up for an e-mail every other day is challenging work. You have to have something interesting to say 180 times a year. You must increase your creative staff. And when you increase staff, management will likely say, “All right, you have built up your creative staff. Pay for it by sending more e-mails!”  Sounds logical at the time; however, we now know that decision would have been dead wrong.

Most e-mail marketers live from campaign to campaign. They don’t have the luxury of taking the long view, as this business case does. Being short sighted, however, can be costly. Testing, giving consumers a choice, and making sure with control groups that what you are doing is profitable are all tactics that should be part of the e-mail marketing tool kit.

It all looks so clear when you look at this chart. Why did Fashion Outlet not realize that they were losing money by mailing too often? Because this chart was not available to them. It is a chart that could only be developed after the year was over and the mistakes had been made. What was going on during the year were 180 individual campaigns, each different, with products to feature, prices to determine, and deadlines to meet. The pressure was on to get the e-mails created and out the door. No one was in a position to take the long view and see where all this was going.

If you are involved in e-mail marketing, you will find that it is hard work. Few people have the time and foresight to look ahead, to do tests, and to develop charts like this one. But those who are successful at e-mail marketing will be those who have the drive and persistence to do just that.

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