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How an Off-E-Mail Multiplier Can Show Your Real ROI

Many people do not understand how valuable e-mails are. When management attempts to measure the importance of e-mails to the organization, they typically look at the revenue generated in the shopping carts of the e-mails. It comes to about 3% of total revenue. Nice revenue, but nothing to write home about. They are really missing a lot.
What happens when a subscriber opens and reads an e-mail? She may:
Click on the e-mail and buy something
Pick up her phone and order something
Check her catalog to see what else is on sale
Print out a coupon and take it to a store
Get in the car and go see the product
Do research on Google for better prices of similar products
Discuss it with her spouse or a friend, leading to a possible purchase
Remember what she saw and buy it later
E-mail subscribers do all of these things. The fact of the matter is that the revenue from the off-line sales due to an e-mail are usually several times the revenue in the e-mail’s shopping cart itself. If you are going to determine what sales your e-mails are generating, you have to include an off-e-mail multiplier to get the full effect of the e-mail.

How can you estimate the size of the off-e-mail multiplier? One retailer with 900 stores and a very active e-mail campaign did a study to prove exactly what happened. They did a test by sending direct mail and e-mails to a total of 140,000 their customers who they had on a loyalty database. They divided them into four groups of 35,000 each. Here were their results:
Grand Total Count Responce Rate Average Order Value Dollars Per Name Mailed Increase From Control % sales in store % sales in online
Direct mail and e-mail 35,000 25% $71.71 $17.67 $3.35 79% 21%
Direct mail only 35,000 24% $68.62 $16.39 $2.07 83% 17%
Email only 35,000 23% $67.82 $15.71 $1.40 79% 21%
Control Group No Mailing 35,000 22% $65.01 $14.32 82% 18%
This was a really great study. Notice that the response rate goes up from the bottom to the top. Direct mail works better than e-mail – but costs about 100 times as much. Direct mail and e-mail together beat everything. From this study, how can we calculate the off-e-mail multiplier? The answer comes from the last two numbers in the third row (E-mail only). From the e-mails sent, 21% of the sales were online – from the e-mail shopping cart or from the website. 79% of the sales came in the store. Simply divide 21% into 79% and you get 3.76. That is the off-e-mail multiplier. It tells you that to determine the non-e-mail revenue generated by an e-mail – for this chain of stores at least, you multiply the e-mail shopping cart sales by 3.76 to get the off line sales due to the e-mail.

I worked with several other data sources to determine the off-e-mail multiplier in other retailers and other industries. Every time I got a number similar to 3.76, but often much higher. Why should it be higher? Because, if you study the chart you will see that the last column (% sales online) adds together sales in the e-mail shopping carts and sales on the website. Of course, most of the people who got the e-mail bought in the e-mail shopping cart – but not all of them. Some of them thought about it, discussed it with their spouse, and then went on the website to buy. This means that the percent purchased in the e-mail shopping cart was less than 21%, which means that the off-e-mail multiplier was higher than 3.76.
OK. Now that you know about the off-e-mail multiplier, how can you use it to measure the true effect of your e-mails? You use a typical subscriber lifetime value chart. Here is the way it is used:
Row Email clothes and retailer Current Year Next Year Third Year
1 Subscribers 1,036,113 865,223 764,252
2 Unsubscribers 8.52% 138,252 73,717 65,114
3 Undelivers 3.15% 32,638 27,255 24,074
4 End of Year subs 865,223 764,252 675,064
5 E-mail Delivered 104 107,755,752 89,983,238 79,482,194
6 Opens 12.65% 13,631,103 11,382,880 10,054,498
7 Unique Clicks 18.75% 2,555,832 2,134,290 1,885,218
8 Sales per Unique Click 2.14% 54,695 45,674 40,344
9 Off E-mail Sales Multiplier 3.76 205,652 171,734 151,692
10 Total sales due to e-mails 260,347 217,407 192,036
11 Revenue due to e-mails $76.82 $19,999,875 $16,701,229 $14,752,196
12 Costs 40% $7,999,950 $6,680,492 $5,900,878
13 Subscriber Acquisition Costs $0.10 $103,611 0 0
14 E-mail Delivery Costs $4.00 $431,023 $359,933 $317,929
15 E-mail Creation Costs $1.39 $150,000 $125,260 $110,642
16 Total Costs $8,684,584 $7,165,685 $6,329,449
17 Profit $11,315,291 $9,535,545 $8,422,747
18 Discount Rate 1 1.11 1.15
19 Net Present Value $11,315,291 $8,590,581 $7,324,128
20 Cumulative NPV $11,315,291 $19,905,872 $27,229,999
21 E-mail Subscriber Value $10.92 $19.21 $26.28
In Row 9 you can see the Off-E-mail Multiplier. This number is multiplied by the e-mail sales to get the number of other sales due to the e-mail. The third year lifetime value of each of the 1,036,113 e-mail subscribers is $26.28. That means that each of these subscribers generates $26.28 worth of profit by the end of the third year – even though many never buy anything, and one quarter of them disappear over the three years. This is a number you can take to the bank and base your budget on. Here is what it tells you:
Every time you lose a subscriber, through unsubscribe or a hard bounce, you have lost $26. Knowing this amount, you can afford to spend money to acquire more subscribers.
If, for example, you pay your catalog reps $5.00 to get the e-mail addresses whenever someone calls to order something from the catalog, you are making a profit of $21 on every e-mail acquired.
If your e-mail marketing manager wants to add a couple of creative e-mail people to create better e-mails which will increase the open and click rates of his e-mails, he can prove that the costs are justified by the way that the better e-mails increase the LTV.
The sales generated by the e-mails are not 3% of total sales, but more like 11.28% (3 x 3.76). Any marketing effort that can prove that they account for more than 11% of total sales is nothing to be ignored – particularly when the cost of sending e-mails is so low in comparison with the costs of direct mail, print, or TV advertising.
Any e-mail marketing operation that has not yet computed their Off-e-mail Multiplier had better get busy and figure out what it is right now.

Arthur Middleton Hughes, vice president of The Database Marketing Institute, has presented 28 seminars on database and email marketing. Arthur has also authored several books including Strategic Database Marketing 4th Edition (McGraw-Hill 2012). He and Andrew Kordek, chief strategist and co-founder of Trendline Interactive, are hosting a two-day Email Strategy Study Group in Fort Lauderdale March 26-27, 2013, featuring group competition for email marketers responsible for subscriber acquisition, lifetime value, ratings and reviews, boosting their email budget, and doubling their ROI. To learn how to attend the Study Group,click here.

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About Arthur

Arthur Middleton Hughes has published over 200 articles on Database and E-mail Marketing. Click Here to read them.

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