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Calculating the Cost of Increased E-Mail Frequency

By Kirill Popov and Loren McDonald

The good news: e-mail has emerged as the marketing channel that generates the highest ROI (define) for most companies.

The bad news: as a result, "send more e-mail" is a frequent mandate from the executive suite to the marketing staff when more short-term revenue's needed.

Ah, if life were only so simple: revenue on demand from e-mail, just like turning on a garden hose. Increasing frequency does work, of course. Whether you go from 2 to 4 times per month or 6 to 12, you're likely to see a strong increase in revenue. But you're also likely to pay a high price for the increased revenue.

Impact of Increased Frequency

Frequency bedevils both postal and e-mail marketers. Overmailing in both channels can potentially fatigue a list so much that recipients stop responding. Yet postal overmailing doesn't put the delivery channel at risk.

E-mailing too often, on the other hand, can generate so many additional unsubscribes and spam complaints that you end up trading increased short-term revenue for a loss in long-term revenue, as well as increased list shrinkage and potential damage to your brand and e-mail reputation. Any additional revenue, leads, downloads, trials, or other desired actions you generate could easily be gobbled up by the higher costs of replacing lost customers or prospects.

This doesn't mean you can't safely step up frequency. In fact, many companies may be undermailing to their current lists. But you first need the right data and strategy to send more relevant, targeted messages at the right frequency for each customer segment.

Case Study: First, the Good and So-So News

A multichannel retailer more than doubled its monthly mailings in an effort to increase revenue. Mailings to its general list went from an average 5 per month (slightly more than once per week) to 12 per month (roughly three times a week).

The increased frequency produced 38 percent more revenue than the five-times-per-month program. OK so far. But calculating the two approaches based on average revenue per e-mail delivered (ARED), the 5-times frequency outpulled 12-times at 18 cents compared to 10 cents per e-mail delivered.

Over a year, if e-mail delivered, clicks, opens, and conversions remain steady, the company would take in an additional $2.2 million by sending more than twice as many e-mail messages. Music to management's ears! Yet the additional revenue comes with an expensive catch.

Now, the Potential Bad News

That $2.2 million top-line revenue looks good, but let's calculate the costs, including hidden ones:

  • Over the course of a month's mailings, the 5-times approach produced a total unsubscribe rate of 0.74 percent, compared to 1.77 percent for the 12-times mailings, an increase of nearly 140 percent.

  • More dramatically, the per-mailing spam complaint rate increased nearly sixfold, from an average per mailing of 0.009 percent to 0.057 percent for the 12-times mailings. But over a month, spam complaints increased 1,300 percent, from a monthly rate of 0.046 percent to 0.646 percent for the 12-times mailings.

  • Adding bounces (a modest increase in the 12-times mailings), the lost address (spam complaints + unsubscribes + hard bounces) rate jumped from a monthly 1.53 percent to 3.44 percent. Over 12 months, this means 41.3 percent of the list will disappear, compared to an annual loss of 18.3 percent for the five-times mailings.

  • In this example, the company would lose an additional 125,000 subscribers annually due to the increased mailings. Though the average cost to acquire an e-mail address from a prospect or customer varies widely, using $15 for this example results in an additional $1.9 million to replace the lost e-mail addresses.

  • Add an estimated $110,000 for the increased cost to send the e-mail and employee time for creating, testing, and sending an additional 84 campaigns per year.

  • The final cost is the toughest: estimating potential lost revenue from customers who said adios. If we apply an average annual value of $14 per e-mail address, potential lost revenue totals $1.8 million. Let's be conservative and reduce the lost revenue to $500,000, assuming these lost customers were probably the least active shoppers.

Whipping out the calculator, the negative financial impact totals $2.5 million. So in this scenario, by dramatically increasing frequency the company increases annual revenue by $2.2 million but at a potential "replacement" cost of $2.5 million.

Whether this example and the costs are in line with your own company's or not, the facts are clear: overmailing to your e-mail list can have a significant negative financial and deliverability outcome.

Source: Clickz.com

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