November 29, 2011 Stefan Eyram
Maybe it’s the ultimate question of email marketing: What is the cost of an email subscriber who has opted in to your email communications?
Better yet, what is the value of an Opt-in email address?
We know from the US DMA that email has the highest return on investment (ROI) of any direct marketing tactic at over $40.00 for every dollar spent. That’s a broad statistic calculated across many companies of varying sizes mainly focused on business-to-consumer (B2C) retail or direct sales.
So how does the average marketer answer these questions to help with budgeting; and to secure and justify this budget?
It all starts with understanding the acquisition tactics that are used to get opt-in email subscribers.
Cost , Value & ROI
What is the cost to acquire an email subscriber?
The easy answer: take your acquisition costs for the year and divide by the number of new subscribers through those methods.
The cost to acquire a subscriber has been calculated to be as low as 25 cents to as high as $200+. The variation is due to different methods used, the specific industry or audience, the value proposition of the marketer, and other variables such as conversion rate.
If a marketer were to build their email database organically through their website only, possibly optimizing their organic search and adding a Facebook email opt-in functionality, the cost of subscriber acquisition would be very low. But growth would be slow.
Should that same marketer employ online advertising such as banners, paid search, pay-per-click, co-registration and permission list rentals, the growth of the permission email database would be much faster…but also much more expensive.
The right balance for any individual company is built on the following two things:
Budget: How much budget is available to drive website traffic and subscriber growth?
Cost Per Email Send: What are the current fixed costs for developing and executing the email program?
Budget is self-explanatory. You need to fund your marketing programs. However, it’s equally important to understand costs and return. If you could get $40+ back for every $1 you spend on a marketing program would you consider it a good thing? And could you get it funded?
With email marketing there are fixed costs to create, test and send an email. These don’t really fluctuate whether you send 500, 10,000, 200,000 or 1 million emails per deployment. Therefore, if your email database is small the cost per email sent goes up. Conversely, as your list grows the cost per email goes down.
To drive value in email marketing there is a critical mass of subscribers required. This threshold will be different based on the marketing budget, especially the budget allocated to email and all things digital.
If it takes you eight hours to develop and create an email, test it and send it out, the cost of production might be $800 (based on a cost of $100 per hour for the internal and/or external resources). Now, if you send that marketing email to 100 subscribers the cost to develop this email would be 8.0 cents each plus the cost of the email platform and the variable cost of each email sent (messaging fee). If you send that same email to 1,000 subscribers the cost is 0.8 cents. At 10,000 recipients it’s .08 cents; and so on.
If you have 10,000 subscribers, send 15 emails per year to the whole database (150,000 emails per year) and pay $5,250 for the email platform and messaging fees ($.035 per email sent) plus $800 per email send in production costs ($12,000), your total cost for email marketing would be $17,250 or $1.73 per subscriber per year. This would be less than the cost of production, printing and postage of one addressed direct mail piece!
The only way to know if that is justifiable is to determine the value of each subscriber, usually calculated as the annual or lifetime value in terms of revenue or profit. To do this you will need to know how much each subscriber, on average, will spend with you on an annual basis plus your average profit margin.
In the example above, assuming a 25% profit margin, to break even you need to drive $6.90 in annual average revenue per subscriber. For 10x ROI it’s $24.15. For the DMA’s suggestion of 44x return on each dollar spent on email the annual revenue per subscriber needs to be $82.80.
This all assumes you have no acquisition costs to cover.
Email Subscriber Acquisition Cost
When it comes to the cost of getting an email subscriber’s opt-in – we will assume all email marketers are getting proper permission to comply with CAN-SPAM and CASL (the new Canadian Anti-Spam Legislation) – we have to break things down by method. Furthermore, to calculate the “average cost per subscriber” you will need to know all of your acquisition costs; to determine “actual cost per subscriber” you also need to be able to track the source of each new subscriber.
With every online acquisition tactic, unless you are enabled for e-commerce and can convert to a sale on the first visit, the key to driving results with your acquisition investments is to have a prominent email sign-up call to action above the fold on the home page and any landing pages. The best practice is to make this the case for each and every page of your website, having the sign-up call-to-action as part of your web page template.
In 2007 ExactTarget , a leading email service provider, recommended that each email address should cost around 5 cents in order to be profitable. Living Social and Groupon have built their daily deal businesses on email marketing and they are budgeting around $5-10 to acquire new email subscribers. In fact, The Wall Street Journal recently reported that in the first half of 2011 Groupon spent $345.1 million on online marketing to attract new subscribers – about a third of its total operating expenses – compared with $241.5 million over the course of 2010. Since Groupon is mainly an email-based deal service the acquisition costs are to get new subscribers.
There are too many variables to make a sweeping statement and acquisition costs have to relate to the value of subscribers.
Email Acquisition Methods & Costs
Website/Microsite including Organic Search: This is the most common method for capturing email sign-ups. Typically this takes the form of directing people to a website for more information, an offer, a sweepstakes/contest, etc.
Cost: Lowest cost; typically already sunk costs in development and maintenance of your website.
Banners & Other Digital Ads: To get more website traffic you will advertise with one or more websites or digital ad serving networks. This can be based on total impressions or total clicks (cost per click). The trend is more towards response-focused buys.
Cost: CPM (cost per thousand) ranges from less than a dollar on a blind buy across a network without any targeting to $100+ for niche buys and more takeover ads, etc.
Paid Search including Pay-Per-Click: This is similar to the organic search but you are paying for inclusion on search engine results pages. With Google this means being at the top of the page – before the organic results – or on the right side of the page.
Cost: Starting at 5-10 cents per click and running to many dollars depending on bidding, popularity of the word(s) or term(s), etc.
Permission List Rental or Sponsorship: A more costly acquisition tactic, permission email list rentals can often target your exact audience with your message and call to action. A lower-cost alternative is sponsoring someone else’s opt-in email newsletter.
Cost: Ranges based on quality and “selects” (targeting); true permission list rentals can range from $25-300 per thousand. Sponsoring an email is usually less “per impression” but often you have to “buy” the whole list which could be 10’s or 100’s of thousands of recipients.
Offline: Many marketers are using traditional media and advertising to drive website traffic. For digital marketers most often these media buys come out of someone else’s budget. All offline advertising should include a website address and should drive to a specific landing page for tracking. Consider using QR codes to help people with mobile devices; but make sure your site – or landing page – is mobile-friendly.
Cost: Can range from nothing – if part of a different budget – to having to pay for the direct mail, in-store signage, print ads, etc. which can be very expensive.
Point-of-Sale: If you own the point of sale this is a great way to build your subscriber database. You can ask for an email address at check-out, provide them an incentive such as coupon that has to be printed from a website or ask them to complete an online survey. If you are using hand-written ballots you will have to factor in the services to get these transcribed.
Cost: This can range from “free” – just using the time of your front-line representatives – to the cost of creating in-store promotions, special websites, fulfillment, etc.
Incentives such as offers, coupons, sweepstakes or games will drive the best results in getting people to your website and your email subscription form.
The Value of an Opt-In Email Address
To many the value in email marketing is not the actual email subscriber but the “relationship” you have with them. This means if you have a deeper understanding of the subscriber, segment and target your emails for greater relevance, and give these people what they want, the value is increased. Therefore, with this increased value you are likely willing – and able – to spend more on acquiring subscribers.
Stan Rapp (yes, the direct marketing guy) has calculated that the value of an email address to a knowledgeable marketer is $118. A Facebook fan has been estimated to be worth $137.
The variables are too many to make a general statement on the value of an email address or subs, riber however, by knowing your various acquisition costs, understanding the lifetime value of a customer and the impact of email on the buying process, you will have all the data you require to create your own model to help you determine what will work for you.
Meantime, as with all things email, the recommendation is to test, test, test. This includes measuring your acquisition, conversion and nurturing campaigns to figure out what works and what doesn’t. Ultimately that will be the greatest value to a marketer.
Stefan Eyram, Raven5 Ltd, Toronto, November 2011