Calculating The Value Of An Email Subscriber
To realise the significance of your email marketing strategy, consider the economic value related to every subscriber on your email list. By being aware of the dollar amount related to each subscriber, you are in a much better position to make decisions regarding where to focus your energy and money. It’s also a concrete way to prove the ROI of your email marketing efforts.
Consider this scenario. If you knew that your annual revenue from email marketing was R2 500 000 and you have 10 000 active, deliverable email subscribers, it would follow that on average, each email list member produces R250 in revenue per year.
Once you have determined the estimated annual value of an email subscriber, you are able to estimate what is referred to as Customer Lifetime Value (LTV). This is an important and often overlooked method of analysing the purchasing patterns within your list. Let’s assume for this illustration, that your data reveals that 1/3 of your customers will buy from you once, another 1/3 will repeat their purchase in year two, and the remaining 1/3 will buy again in year three:.
- 3 333 subscribers x (R250 x 1) = R883 250
- 3 333 subscribers x (R250 x 2) = R1 666 500
- 3 333 subscribers x (R250 x 3) = R2 499 750
- Total Value = R4 999 500
- Divide by original number of subscribers (10 000)
- Estimated lifetime subscriber value: R499 per subscriber.
This is but one basic calculation that is used to determine email list worth and there is no specific industry standard. However, the method you choose to follow is not as important as calculating the value consistently and using it to make informed decisions rather than guesstimates.
Another way to calculate email subscriber value is to use the number of clicks from your campaigns over a specific period, e.g. a year. Use:
- Number of active subscribers (X): 10 000
- Sales resulting from email clicks over the past 12 months (Y): R2.5 million
- Next, use your email report data to tally the total number of clicks in the time period you’re assessing. In the example above, we’ve counted out 4 038 clicks. (You can also do this by using Google Analytics and tweaking the formula a bit.)
- Value of an email subscriber = R2 500 000 / 4,038 clicks = R619.12
Both these methods, and most likely all methods used, have significant shortcomings. For example, it assumes that you would know exactly what revenue was earned from each marketing channel and in practice it is not always easy to determine.
However, regardless of how you calculate the value (use this handy online calculator if you need help in the maths department: http://pamneely.com/email-subscriber-value-calculators/), having a number in mind will make it easier to decide what you can afford to spend, in terms of time and money, on acquiring new contacts or generating email content and sending it to your subscriber base.
For example, if you use the first calculation of R250 as an example, it would make sense to keep your marketing costs below R50 per subscriber. This may mean that you have to send fewer messages, or that you should invest less in content generation. Whichever way, you will have a sound premise to base those decisions on.
Here are some points to consider to make this calculation as accurate as possible:
- Focus on list building. Your email list is your treasure, so make sure you only add subscribers that have or will have economic value. Once they are on the list, keep them engaged with excellent content and you are bound to see your email marketing ROI grow. Read up on how you can build and maintain a strong email subscriber list.
- Practice good list hygiene. If your list is littered with addresses of inactive subscribers, your results will be skewed and show a lower than actual email customer value. If you perceive this value to be too low, you may start spending less on acquiring new subscribers, or start skimping on content or contact with your customers, in order to try and balance the cost vs. return ratio. By maintaining your lists and regularly cleaning out inactive subscribers, you’ll save on email costs.
- Follow email best practices. If your hard work ends in subscribers’ junk mail folders instead of their inboxes, your calculations will be incorrect and as a result affect any decisions based upon these calculations. Take every effort to follow the rules and you will be rewarded with an improved sender reputation and better deliverability rates too.
Every business is unique and will experience different responses to email marketing. However, estimating the value of your subscribers and the overall value of their lists will help you decide how much money to spend growing them, regardless of your business or industry. And when it comes time to justify your results and ask for more budget, showing hard numbers for your efforts will always stand you in good stead.
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