Posted on | December 5, 2012
Written by | Ian Griffith
A report from the Pew Internet Project last year confirmed that email is still the top online activity and is nearly universal among adult users. However, Julie Katz at Forrester Research cautions about the potential for abuse when email is used to “deliver fast relief to marketers looking for short-term boosts.” It can be tempting to over-exploit your email list for sales; but, sending too many emails will jeopardize valuable relationships with your best customers. Many of the largest wine retailers now send daily emails, and while some offer profile settings with less frequent options, it has become acceptable to send more emails than most customers can bear. After receiving too many emails though, your customers will start to ignore them, making your aggressive email campaign backfire.
Marketers have always known the cost of acquiring new customers is higher than retaining existing ones; Bain & Co. estimates that you spend six to seven times more in acquiring a new customer than retaining the ones you have. This important insight has been largely overlooked by more aggressive emailers. According to Katz, retailers need to change their mindset from one emphasizing quick-hit returns to one striving to forge long-term bonds. One way to do this is to focus on metrics illustrating long-term benefits. By paying attention to open and click-through rates, it has been easy to lose sight of the long-term value of a customer list.
Churn Rate: You should be tracking new email subscriptions along with subscriber defections and un-subscribes. At the very least, new subscribers need to keep up with un-subscribes and hard bounces so your list doesn’t shrink.
Inactive Subscribers: If you email your customers several times a week, then you should assume that a customer becomes inactive after three to six months without opening an email. There is no value in continuing to mail inactive subscribers at such a frequent rate; however you should target them for a reactivation. Once an address has been inactive for between 12 to 18 months, throw it away. Unfortunately, consumers are largely unaware of the repercussions from reporting legitimate email as spam, so to avoid having spam complaints, it is better to remove inactive subscribers.
Compare Revenue from New Subscribers with Existing Ones: These rates combined with the churn rate will give you firsthand evidence of why you need to work to retain existing customers. According to Mark Klein of Loyalty Builders LLC, the relative total revenue from existing customers is typically ten times greater than newly acquired customers.
Email Value: Let’s say you have 5,000 emails in your list, an open rate of 10%, an average revenue per email of $500, and you send 120 emails per year. Using these assumptions you can create a simple calculation of potential annual revenue of $60K, with the average revenue per address at $12, but average revenue per active address at $120. By recalculating the value of your active addresses each week, you will see how your campaigns are impacting the lifetime value of your customer list. This makes it easier to change the focus of your campaigns to build value.
To improve the profitability of your email campaigns, try shifting your email tactics from short-term goals to long-term value.
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