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How Effective is Email Marketing? 5 Ways to Determine the True ROI of Email
Digital marketing never sleeps: Your company tweets, creates targeted Facebook ads, and keeps customers aware of your latest happenings through Instagram. On top of that, there are always the latest social media trends you need to start incorporating into these efforts. So, how effective is email marketing?
Isn’t email marketing a bit old school? Sure, recent statistics show 269 billion emails are sent each day, but at the same time, almost 49% of email is spam. How can you be sure your email marketing is providing enough return on investment (ROI) to be worth your while?
The truth is email marketing is more effective than ever before.
To measure this, however, means you must track key performance indicators (KPIs). This not only allows you to see what’s working, but you’ll also be able to adjust what you’re doing to be even more effective. We’ll show you the basic metrics below you need to monitor in order to be in full control of your email marketing and maximize your ROI.
The power of email marketing
Email has a long history in online marketing. After all, it was the first large-scale, one-on-one means of communication on the internet.
At the same time, its abuse by spammers led to 2003’s CAN-SPAM Act which regulates commercial email: subject lines cannot be misleading, a physical address for the business sending the message must be on each email, and opt-outs must be honored within 10 days.
The penalties for not following its provisions can be severe, up to $40,000 per email found to be in violation.
This may seem to make email marketing more trouble than it’s worth, especially given the lack of comparable regulation with other, newer digital promotion channels. This is, however, not the case as effective email marketing still provides the best ROI:
- Every dollar spent on email marketing generates $40 of revenue.
- Emails are six times more likely to generate click-throughs than tweets.
- Triggered email campaigns generate 75% of email revenue as opposed to one-size-fits-all mass email blasts.
Image: Neil Patel
5 email marketing ROI metrics
The important thing here is “effective” email marketing. If you’re not tracking how your campaigns are performing in key areas, your ROI will be low or, in a worst-case scenario, cost you both customers and money.
That’s why monitoring the five metrics below is critical to achieve and maintain email marketing success.
1. Delivery rate
Before worrying about bounce rates or click-throughs, the first important KPI is your delivery rate because that affects your sender reputation.
Internet service providers (ISPs) assign a reputation score to each bulk email sender. A low score means your emails may not be delivered or, if they are, will send them to users’ spam folders.
Your score depends on a number of factors, including:
- number of emails you’re sending out.
- how many users mark your emails as spam.
- how many of the emails bounce.
TBC Corporation implemented efforts to increase email delivery rates from a typically 50%-60% range. This was done by first segmenting their primary distribution list into active and inactive subscribers. That is, people who had or hadn’t opened or clicked an email in six months.
After segmentation, delivery rates immediately went up for the active list. In addition, extra measures were taken with the inactive list—removing bounced addresses, reducing email frequency, and updating addresses—to re-engage these subscribers. With both groups, delivery rates increased to over 90%, and 3%-5% of inactive subscribers were reengaged.
2. Bounce rate
Once your emails are allowed by an ISP, the next key metric is the bounce rate: the number of emails that couldn’t be delivered. There are two types of bounces: hard and soft.
A hard bounce occurs when an email address doesn’t exist.
A soft bounce is when an email box is full, a server is down, or your email is too big.
You need to continually monitor your bounce rate—anything over 2% demands your attention and over 10% is a sign of real trouble—and edit your list accordingly. That’s because, as noted above, you don’t want your sender reputation affected or to end up on a blacklist of blocked email senders.
Here’s an example to illustrate the problems which can occur due to a high bounce rate.
Let’s say you have a list with 3,000 email subscribers, but you haven’t sent out an email in over a year. Because the list is “stale,” 150 of 300 messages which go to Yahoo email accounts bounce. The next time you send out an email, Yahoo could easily block all the messages—even ones to accounts which received the last one—because of the previous 50% bounce rate.
3. Open rate
So, you’ve sent out your email campaign, and the messages have been delivered. Now it’s time to track the open rate. This is a critical metric because you’re measuring actual engagement by recipients.
Open rates vary by industry, but the overall average is a little less than 25%.
Your open rate is calculated by dividing the number of opened emails by the total emails sent minus bounces and then multiplying by 100.
For example, if you have 250 emails opened out of 1,000 sent after subtracting 75 messages which bounced, the equation would look like this:
250 / 925 (1,000 emails sent minus the 75 bounces) = .27 x 100 = 27% open rate
Increasing open rates hinges on the email subject line, and a good subject line can make all the difference in the world. There are three basic things to keep in mind:
- Keep it short: Email recipients are using smartphones more than ever, and that means an email notification on a screen will only show the first five words or so of the subject line.
- Use a call-to-action (CTA): Use words in your subject line which create a sense of urgency on the part of the recipient. That is, as opposed to saying, “Jeans on sale,” consider, “Today only! Jeans 50% off!”
- Test your subject lines: A/B testing can show you what subject line gets the most opens.
4. Click-through rate
After recipients have opened your email, the next engagement metric is click-throughs: How many times did users select links which led back to pages on your website?
One basic formula to track this activity is the clickthrough rate (CTR), the number of clicks divided by the number of emails delivered.
An even more specific calculation is the click-to-open rate (CTOR): the number of clicks divided by the number of emails opened.
This case study details how Whirlpool increased its click-through rates by creating a testing culture: Originally, its creative department would craft an email campaign which would be approved by a brand manager and then be sent out. Design and CTA elements were incorporated without first testing their effectiveness.
After implementing A/B split testing, however, email layouts were streamlined, and click-throughs increased by 42%.
5. Forward and share rate
Finally, if your email recipients find value in the information you’re sending them, they’ll be forwarding your message to friends and family as well as sharing it on social media.
This kind of engagement is gold since you’ll now have access to their social networks far beyond your own distribution lists. There are five factors which will help increase your forward and share rates:
List segmentation
The further you segment your distribution lists by demographics or buyer personas, the more specifically you can tailor the messages in your emails. This is vital as evidence shows the more relevant the content, the more likely your recipients are to forward or share it.
Personalize
Personalization goes beyond inserting a recipient’s name into a salutation or some other fill-in-the-blank spot. Instead, this means including more dynamic content such as, for example, photos of the recipient at an event. After all, it’s easier to forward a message than download the image to send as an attachment.
Ask for sharing
Email campaigns with the highest forwarding rates include a prominent “share with your network” CTA.
Focused content
Emails with a single topic are more likely to be forwarded and shared because the original recipient doesn’t have to explain to others which topic to focus on.
Keep it simple
Research shows the simpler the graphic design of emails, the more likely they are to be forwarded and shared. This may seem counterintuitive given the emphasis on flashy, complex layouts, but in the end, it really is content which is king.
Wrap up
Email has been around longer than any other form of online advertising and promotion. However, that doesn’t mean its time has passed in comparison to newer social media and digital channels.
Instead, email campaigns continue to produce exceptional ROI when deployed effectively.
Continually monitor the five metrics above for each individual campaign as well as comparing campaign-to-campaign performance. In addition, keep a close eye on three additional bottom-line KPIs—revenue growth, website traffic, and brand awareness—as they’ll indicate how your email campaigns are (or aren’t) contributing to business growth.
