Here's the thing: email marketing can generate incredible ROI, but you have to have a solid strategy in place to see amazing results.
Keep reading to learn what email marketing ROI is, why you should track it for your company, how to calculate it in four steps, and more. Let's dive in!
What is email marketing ROI?
Return on investment (ROI) is an important business metric that measures profitability.
It's calculated by subtracting the initial value of an investment from the end value of the same investment in order to get a net return, then dividing the net return by the total costs accrued and, finally, multiplying this final figure by 100. Here's the formula:
ROI = (Final Value - Initial Value) / Costs x 100%
For example, if you bought 100 shares in a company for $20 each and sold them a year later for $30 each, your ROI on the investment would be 50%:
[(30 x 100) - (20 x 100)] / (20 x 100) x 100% = 50%
Email marketing ROI is found by applying this same formula to your company's email marketing strategy in order to discover the profitability of your efforts.
Do I need to track email marketing ROI?
Here's a better question: why don't you want to track email marketing ROI?
It's an incredibly useful metric that will help you determine if your email strategy is working or not. With this information, you can adjust your approach as needed to get better results.
Here are a few benefits you'll enjoy once you start tracking email marketing ROI:
- Better Brand Awareness: Does your target audience recognize your brand? Email marketing is one of the best ways to build a relationship with leads and customers—but only if they actually read your messages. By tracking the ROI of your campaigns, you'll be able to tell how effective your efforts are in reaching subscribers.
- More Website Traffic: Every business wants more website traffic and a strong email marketing strategy is a fantastic way to achieve it. But how do you actually get your subscribers to click on links and visit your site? You study your ROI to understand what motivates them, then you use these tactics in all of your emails.
- Higher Revenue: Email marketing ROI tracks the value you receive in exchange for the time and money you spend building campaigns. When you know what your current ROI is, you can work to improve it, leading to higher revenue numbers.
Can we agree that tracking ROI for email marketing is really important? Great, now the question is, how do you do it? Let's talk about that...
How to calculate email marketing ROI in 4 steps
Ready to discover your email marketing ROI? Follow these four steps to learn how effective your current email strategies are and whether you need to change your approach:
1. Know your email marketing goals
It can be tricky to track ROI for email marketing because there are so many things you can achieve with this strategy. Better brand awareness? Check. Consistent lead nurturing? Check. More website traffic, additional sales, and higher revenue? Check, check, check.
That's why you need to understand your goals before you start making ROI calculations.
Once you know what your email marketing tactics are trying to achieve, you'll be able to track ROI much more accurately. This is because you'll have a better idea of both the costs involved and the benefits achieved by your efforts.
2. Track your email marketing expenses
Next, round up every dollar spent on email over the past month, quarter, year—whatever time frame you're looking to track email marketing ROI for. This will include:
Email marketing software
You can't succeed at email marketing without reliable software. And most software worth your time costs money to use. Tally up the amount you've spent on your ESP, email analytics and design platforms, and any other kind of tool you use to send email campaigns.
Employee time & wages
Here's where things might get a little tricky. Unless your employees work for you for free, they represent a cost that must be factored in. Make your best guess as to the number of hours your team spends on email marketing. Then convert this number into an hourly rate.
For example, Jack is in charge of email marketing for Company XYZ. He spends about ¼ of his time writing messages, designing CTAs, etc.—roughly 10 hours a week. Since Jack makes $10,000 a year, Company XYZ should factor $6,250 of email expenses for the quarter.
Have you spent money on anything that doesn't fall into the two categories above, but still pertains to your email marketing efforts? Make sure to include all purchased images, consulting fees, etc. in your email marketing ROI calculations.
3. Tally the benefits of email marketing
Now it's time to calculate the value derived from your email marketing efforts.
This is easy to do if you sell products and/or services online. But remember, sales aren't the only value that email marketing generates. Leads should be taken into consideration, too.
The easiest way to tally sales and leads generated is by using Google Analytics, especially if your ESP integrates with the Google Analytics platform. Search your Analytics dashboard to find how many sales came from an email campaign within the time period you're tracking.
Got that done? Perfect, now dive back into Analytics and search for conversions that can be attributed to your email campaigns. Four our purposes here, a conversion is anything that might lead to a future sale: viewing a product page, downloading an ebook, etc.
Next, you need to determine what each lead is worth to your company, which can be done by multiplying the value of a product or service by its conversion rate.
So, if you sell a product that costs $49 and converts at 3%, a lead would be worth $1.47.
The last thing you need to do is add up your sales revenue and the estimated lead value. Returning to our previous example, if you sold 172 products at $49 and generated 386 leads at $1.47 each, your total email marketing gain would be $8,995.42.