Let’s address one of the most common questions about email marketing: how to measure email marketing ROI. First, let’s start simple. This is the mathematical formula for ROI:
Earned – Spent / Spent = ROI expressed as a percentage
By its very definition, you must be able to measure what you earned on your email marketing and what you spent on it. Let’s look at an example B2C health and fitness club for the purposes of illustrating how to calculate email ROI.
How to calculate email spend
Combine the cost of your email service provider over the period which you’ll be measuring. For example, if you pay $300/month and you’re measuring your email ROI for the quarter, your spend is $300 x 3, or $900. We’ll use that for our example fitness club.
That’s not all, however! You also need to factor in how much time you spent on email as money. If you have an employee or employees working on your email marketing, determine how much of their time during that period was spent on email marketing. If they spend an hour a week, for example, then the time spend was 13 hours for the quarter. Next, calculate their effective hourly rate as an employee (annual salary / 2,080 working hours per year) and multiply that by the time spent on email.
For example, our fitness club marketing employee earns $50,000/year; their effective hourly rate is $24.04/hour. If they spend 13 hours a quarter on email, they are spending $312.52 in time on email.
Combine the email service provider cost plus the time spent as money and you’ve got your spend calculation for email ROI. In the fitness club example, that’s $312.52 + $900 = $1,212.52 for the quarter.
How to calculate email revenue
The simplest and most direct route to calculate the effective revenue of email is to ensure that you have goals and goal values set up in Google Analytics and then track your email channel’s earned revenue via Google Analytics. Be sure to read this post on the WhatCounts blog for how to set this up if you haven’t already done so.
You’ll want to ensure that you’re using your multichannel funnel conversion number to get the most accurate picture of email’s revenue delivered. See this post about MCF email value for more information.
For the fitness company, their monthly gym membership is worth $150/month. They know that if they can get someone to set foot in the door, they have a 90% closing rate – that is, 9 out of 10 people who physically come into the facility sign up for a membership, and they know that the average member sticks around for 18 months. Thus, the value of getting someone into the facility is:
18 months x $150/month x .9 probability of conversion = $2,430
They also know that if someone fills out a “book an appointment” form on their website, they have a 25% probability of actually showing up at the facility. The effective value, therefore, of a completed appointment form on their website is:
$2,430 value x .25 = $607.50
The fitness club inserts this into their Google Analytics as the goal value assigned to that website form and tracks the impact of email on conversion for the quarter.
From their Google Analytics, email delivered 13 direct, last interaction conversions worth $7,897.50 and an additional 5 assisted conversions worth $3,037.50 for a total of $10,935 for the quarter.
Calculating the email ROI
Let’s plug in the numbers.
Earned – Spent / Spent = ROI
$10,935 – $1,212.52 / $1,212.52 = 8.018
That’s a return on investment of 801.8%, which means that for every dollar the fitness center spends on email marketing, they earn it back plus an additional $8.02. Any business would be thrilled to be getting back 8x what they spent on any marketing channel, which is why email marketing is still one of the most powerful marketing methods available to you.
Now that you’ve seen how our example fitness club calculated its email marketing ROI, you should be able to do the same for your business.
In the next blog post in this series, we’ll talk about how to improve your email marketing ROI. Stay tuned.
Christopher S. Penn
Director of Strategy, WhatCounts