August 29, 2007

E-Mail Productivity Is Waning ... Or Is It?

Has your e-mail campaign productivity dropped significantly over the past three years?

For all of the glitz and vendorspeak surrounding e-mail, many companies tell me that e-mail campaign performance declined by between ten and forty percent over the past three years.

Often, the folks who analyze e-mail campaigns do not have the tools necessary to decompose the performance of an individual campaign. Often, these folks don't talk to the SAS programmers or Catalog circulation experts sitting down the hall from them, folks who could really help them out!

You've got to remember, these Catalog/SAS folks have seen every productivity problem under the sun. E-mail marketers often have much less business experience to draw upon. So why not get yourself some help???

On the surface, your e-mail campaign performance might look like this, over the years:
  • 2004 $/E-Mail = $0.29.
  • 2005 $/E-Mail = $0.26.
  • 2006 $/E-Mail = $0.24.
  • 2007 $/E-Mail = $0.23.
Things don't look too promising. Time to fire the e-mail director.

Here's where you go talk to that SAS programmer down the hall. Ask this person to segment your e-mail subscriber file into two groups:
  • Group 1 = Customers who clicked-through an e-mail to the website at least two times in the year prior to receiving the current e-mail campaign. Call these folks "engaged" customers.
  • Group 2 = All other Customers.
Within each group, measure $ per e-mail.

Many times, you'll see this kind of trend:

2004 Engaged Customers 10,000 $2.00

All Other Customers 90,000 $0.10

E-Mail Totals 100,000 $0.29




2005 Engaged Customers 11,000 $2.10

All Other Customers 108,000 $0.07

E-Mail Totals 119,000 $0.26




2006 Engaged Customers 12,100 $2.15

All Other Customers 129,600 $0.06

E-Mail Totals 141,700 $0.24




2007 Engaged Customers 13,310 $2.17

All Other Customers 155,520 $0.06

E-Mail Totals 168,830 $0.23


This is important! E-Mail campaign productivity is not decreasing. Instead, you have what catalogers call a "file mix issue".

Catalogers have known for a century the importance of "file mix", of having a healthy file of great customers. Catalogers seldom talk about the performance of the entire file when sharing results.

In this case, the file might actually be healthy. "Engaged" customers, those who click-through at least two e-mail campaigns per year are increasing in size, and productivity per e-mail campaign is increasing.

What is happening is that there is a significant portion of the e-mail file that is completely disinterested. This part of the file is increasing at a faster rate than the engaged portion of the file, and productivity per e-mail among this audience is decreasing.

The "file mix" is driving productivity down.

When the engaged audience is decreasing in size, or the engaged audience is spending less per e-mail campaign, you have a problem.

The good folks in the e-mail campaign management tribe can get some answers by simply talking to the folks in the SAS tribe, or the folks in the Catalog circulation tribe.

By simply segmenting the e-mail list into these two groups, one can quickly determine if there is a performance problem, or a file mix problem.

11 comments:

  1. This is a great perspective. Is the "two-time" rule a solid one across catalog types? Is there a good correlation between the Engaged group and higher online spends? (In other words, can the "dis-engaged" segment purchase higher ticket items than the Engaged folks?)

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  2. There is some level of engagement that separates real e-mail subscribers from everybody else. This level is somewhere between two and ten click-throughs of an e-mail per year. The number is dependent upon how often the brand sends e-mail campaigns (2x per week, weekly, monthly). A monthly campaign has a lower threshold than a weekly campaign.

    Sometimes the infrequent "click-through" customers purchase high-ticket items. It is a brand-specific issue, each company has different customer behaviors to measure.

    But in general, if the customer never clicks through an e-mail, the customer isn't engaged. These customers must be analyzed separately from loyal e-mail subscribers.

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  3. I would say email ROI has increased dramtically over the past 3 years and still blows away other marketing channels. For instance, see this metric:
    For every dollar spent on email marketing in 2007, marketers can expect an estimated $48.29 ROI. - DMA (2007) via http://www.emailstatcenter.com/ROI.html.

    Open rates and click through raters have fallen recently due to image suppression and other deliverability issues. What I am optimistic about is the strides we (BrightWave Marketing) are seeing wiht our clients is their focus on the end game, whether it is sales, store or website traffic, new subscribers etc.

    3 years ago it was hard to get people to think beyond their open rate which was tough when trying to reshape email programs at a high level.

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  4. We can agree to disagree on e-mail ROI.

    ROI looks great for e-mail, because it costs less than a penny to send an e-mail to a customer.

    A catalog can generate $5.00 of sales on $1.00 of cost, yielding $0.50 profit. The ROI is 50%.

    An e-mail can generate $0.25 of sales on $0.003 of cost, yielding $0.07 profit. The ROI is almost infinite!

    Yet, the catalog drove $0.50 profit. The e-mail drove $0.07 profit. You take profit dollars to the bank, not ROI percentages.

    The article you reference missed this point, it was biased to promote a pro-e-mail agenda.

    I want to promote a total sales and total profit agenda.

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  5. I would say it would be a great problem to have an even lower ROI in email...so long as total margin dollars driven to the bottom line are increasing (as they are y/y in your example).

    THe important thing is that even the "bottom" of your file is earning 6 cents per email - yielding maybe 1.5 cents in profit on 0.3 cents of marketing investment.

    I don't care how much the ROI goes down. I'm going to judge my email director on whether s/he can continue to recruit new email addresses for a reasonable cost per name - and on the total margin delivered by email.

    That being said, your points are well taken. And you haven't even addressed the opportunity to drive higher response and revenue with targeted versioning (segmentation).

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  6. I like profit dollars, when profit dollars are increasing, my e-mail team is doing well!

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  7. Melinda Krueger8:56 AM

    It is irrelevant to talk about profit per email when the marginal cost is so small. Using the example shown, if you subtract $.01 per email (which is high) + $5,000 per campaign (about average), you'll see that net revenue is growing from $23,000 the first year to $32,000 the last. If you want to promote a "total sales, total profit" agenda, you can't ignore that fact. It's not a matter of email vs. catalog; you need both. Some people shop online, some people use the catalog, some do both. This is not to say that one shouldn't do everything possible to keep subscribers engaged.

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  8. Melinda Krueger9:41 AM

    Wait a minute...if you're calculating ROI as benefits/costs, the ROI for email in your example is 2333%. Of course you have to look at percentages, it's the only way to normalize the information.

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  9. Yup Melinda, total profit going from $23,000 to $32,000 is good.

    Folks keep telling me that e-mail productivity is dropping ... they measure it as sales per e-mail.

    If they looked at total profit, as you illustrated, then things are still ok.

    Since that doesn't always happen, I try to help folks identify the "engaged" audience, a concept that seems to resonate with some folks.

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  10. Great post--one always has to look at the factors that go into these summary statistics. In fact, it would be easy to have another case where both the engaged and dis-engaged customers increasing size and spend, while the overall statistics decrease (because the dis-engaged customers are disproportionately represented). This is the classic "Simpson's Paradox" (see here.

    The problem is that it is often difficult to uncover these kinds of effects without experience and expertise, or some other automated analysis (but even in this case, you would have to create the correct feature/variable to find the effect). That's the fun of it all, I guess!

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  11. Yup, you need folks to do the exploratory work.

    And the situation you describe does happen. Catalogers are wary of the effects of "file mix". E-Mail marketers will continue to learn about these interesting happenings.

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