Calculate Email Marketing ROI [Use This Simple Formula] | FireDrum

Email Marketing Blog

Return on Investment is surely – and deservedly – the key metric used today to measure the impact of marketing communications.

Yes, ROI is magical, clearly the Holy Grail for determining the worth of sales-oriented messaging. Though this is widely acknowledged, curiously, it is one of the least understood and applied tools in the marketer’s arsenal. This is because it is, at best, difficult to calculate in most advertising media, particularly branding-focused campaigns that do not lend themselves to being readily tracked.

Conversely, because of its track ability, judgments made about digital advertising tend to be more accurate, easier to calculate and, thus, more useful for bottom-line evaluation purposes. If, indeed, putting together an ROI calculation for digital marketing is easier, then one can only wonder why the Direct Marketing Association reports that, when surveyed, just 61% of the respondents said they were able to calculate revenue produced from email marketing, whereas 34% do not know how!*

That’s true . . . fully one third of email marketers don’t get it!

In order to calculate ROI, a marketer must understand the revenue generated from the campaign, the actual cost of the campaign, and lastly, but often overlooked, the cost of goods/services sold.

Here is a quick example of this formula in action:

The monthly budget for email marketing is $500. It generates 25 sales per month. Each sale generates $200. The cost of goods sold is $120.

Using this example:

25 sales x $200 = $3000, (Revenue generated by the campaign), $200-$120= ($80 Margin), $80/$200 = 40% (Margin as a % factoring in Cost of Goods Sold), $5000 x 40% = $2000 (Net Revenue), ROI = $2000/$500 = 4 or a 400% ROI

Thus, every $1 spent on email marketing produces $4. This number can also be used to measure the effectiveness of other marketing avenues. If an advertising medium has a lower ROI, it is reasonable to assume it is a less effective use of the marketing budget. Understanding how to balance these ROIs across all marketing efforts is essential to a cost-effective marketing strategy.

Note: If this method is used to evaluate various marketing media, you must use care in determining how to recognize revenue and cost allocation. You must also implement the same formula across all mediums to fairly compare your marketing spend.

The question then becomes, how should email reports be used to determine ROI? According to Lyris, the top two ways are, Example: A) counting the number of email clicks or conversions (55%) and B) counting the number of email opens (33%). There is no doubt the more effective method of tracking ROI is the latter. First, make sure your email communication has a call to action that is trackable. Couponing and promotional offers are the easiest to track through to conversion. These communications can be coded, and when redeemed can provide an accurate picture of revenue generated. When using email primarily to foster the sales process, you must consider metrics like appointments set and phone calls in; these can be assigned a close rate, and revenue can be determined through a simple calculation.

Using the FireDrum reporting capabilities allows seeing, not only how many clicks/and or conversions occur, but which customers are converting. Both, those who respond to your email marketing efforts and those who do not should be identified. You can create separate categories for each segment and customize your messaging with the goal of optimizing your email recipients’ conversion.

If ever you feel the need for help in understanding your reports, please do not hesitate to contact us. We can help optimize your campaigns and the automated communications associated with them to ensure every dollar spent provides you a positive return.

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