Track E-Mail Marketing's Unique ROI

Marketers can spend a lot of time debating whether or not e-mail has the best return on investment of any marketing channel.

Clearly, e-mail marketing has a very low incremental variable cost. It might cost 50 cents to send an incremental catalog to a customer; it usually costs far less than a penny to send an incremental e-mail to a customer.

As a result, ROI is a very different discipline in e-mail marketing. While there's nothing wrong with measuring ROI using traditional metrics (open, clickthrough and conversion rates), you can use mail and holdout tests to obtain a realistic view of the long-term impact of e-mail marketing.

Below are the results of a sample test. This particular marketer randomly sampled customers and placed them into one of three test groups. The first group received a weekly e-mail campaign. The second group received two e-mail messages per month. The third group didn't receive any e-mail messages during the month. This test was conducted over the course of three months.

Group 1: 12 Messages: Total demand = $30; Incremental demand = $3; Opt-out rate = 10 percent
Group 2: 6 Messages: Total demand = $28; Incremental demand = $2; Opt-out rate = 4 percent
Group 3: 0 Messages: Total demand = $27; Incremental demand = $0; Opt-out rate = 1 percent

The methodology allows marketing analysts to understand two key aspects of e-mail marketing. First, we view the column labeled "Incremental Demand." Notice there's a law of diminishing returns occurring. Going from zero to six campaigns yields $2 of demand. Going from six to 12 campaigns yields $1 of incremental demand.

Second, we notice that the opt-out rate increases at an exponential rate. Additional contacts mean more customers become frustrated.

The test results are used to predict future volume.

Group 1: 12 Future messages = $3 demand x (1 – 0.10 opt-out) = $2.70 future demand
Group 2: 6 Future messages = $2 demand x (1 – 0.04 opt-out) = $1.92 future demand
Group 3: 0 Future messages = $0 future demand