The Cost of Irrelevancy

In order to create the type of email program that is responsive to our subscriber needs, we need resources, both technology and human.  And that means we need money.   In this article Stephanie Miller explains how to make a business case for investment in the email channel by showing your management what the the cost of irrelevancy is:

Your CFO (or CMO or CEO) thinks that sending that additional message is simply the cost of broadcasting them — the CPM we pay to our email delivery vendor.  Actually, the real cost includes the costs of replacing addresses lost because of increased unsubscribe requests, complaints (clicks on the “This is Spam” button), decreased deliverability and fatigue.

Let’s say that your “one more blast” message to a million recipients results in a half a percent more unsubscribe requests, a 5% boost in complaints and a 10% boost in fatigue.  Add that up, and you are talking about 150,000+ subscribers that you need to pay to acquire again or replace.  The negative revenue hit is not just against this one mailing.  You also need to factor in the cost of unrealized future revenue from those lost subscribers. If your average subscriber spends even $100 a year with your company through email, you’ve lost the opportunity to capture that revenue from all 50,000+ subscribers.

Lastly, the impact of this mailing has what I call a “brand slam” factor, based on negative brand impression and lower loyalty.  We typically assign some brand slam factor (say a penny or half a penny) based on the inverse of your open rate - how many subscribers never opened anything this month?  You’ve taken a brand slam with emails that are not compelling enough to engage.

Add it all up.  When we do the math on our sample mailing of just one million records, we often find that a mailing that the CFO thought cost around $1,000 in broadcast fees, actually cost the business $500,000 or more.  That is real money!  And a real missed opportunity for future sales and customer relationships.

Here’s where all that math pays off — doing the ROI calculation for a mailing that costs $1,000 is very different when the actual cost is closer to $500,000.  It’s really hard to make up that delta in revenue, especially when you have to pay to acquire customers or pay high fees to contact them via other channels like telesales or postal mail or search. Now this is a language that your CFO can understand.  You can quickly start talking about investment in the channel.

OK, you may be thinking: “Focus on the customer.”  That sounds reasonable.  Yet, if this is so obvious, why don’t we do it?   Well, I think it’s because email marketing works too well. It’s easy to get stuck in the status quo, blasting away at our subscriber files with irrelevant messages and hoping that it resonates with enough subscribers each time to make our number.

Source: Email Insider 

Comments

[Matt]

I read an interesting post by Elana Anderson regarding the danger of these CPM pricing models used by email vendors. (http://nxteramarketing.wordpress.com/?s=cpm&searchbutton=go%21)

Elana postulates that the email CPM approach raises the cost of irrelevance and may ultimately put email marketing service providers out of business.

One email vendor, Bronto Software has recently introduced 'cell-phone' like pricing for their customers pay quarterly. Customers must use their allotted email minutes quarterly or let them expire like a gallon of milk. This is bad business as customers will know doubt rush to deliver their messages in the alloted time period, only to raise the level of email fatigue in the market today. Bad business.