Email can be a critical part of any cross media marketing strategy, but it is important to understand the real cost of developing and distributing an email campaign. Many seasoned marketing executives we speak to every day have in their minds that email is a cheap and effective way to promote their products and generate massive ROI with little or no effort.
For firms that have an extensive opt-in email list and additional customer information to segment offers this can be true. Internet or mass market retailers and international brands that have been gathering email addresses and customer information from sales and other collection mechanisms (such as contests, information requests, etc.) can spend a few thousand dollars on design and execution to send out an email blast. They can achieve a very low response rate that still generates a massive return on investment. When we take a few moments to break down the numbers, we quickly see that generating a positive return is not attainable for most firms. Here is how the numbers break out. The hourly rate used in the example is realistic for the actual cost of labor, but feel free to substitute your own.
For this example, here are the assumptions made:
Design & Copy: 8 Hours @ $ 125
Artwork: 2 Hours @ $ 125
Giveaway / Discount / Offer Cost: $1000
Distribution: .02 cents
Response Rates: 5%, 1%
Profit from Sale: $ 5
Notice that a 5% response rate is required in purchases, not the open rate, to break even. Good luck making that happen without detailed customer information and segmentation. If the sale is a big ticket item that requires a consultative selling process, than even a 1% response rate is highly unlikely. At 1%, the breakeven point comes at 100,000 emails with a $5 profit. Very few companies have that quantity of contacts to target.
For 500 recipients the cost is $4.92 each. For 2,000 recipients, the average email size, the cost is $1.25 per piece which is more expensive than comparable direct mail. A direct mail piece is one of four or five the recipient will get in a day as opposed to one of hundreds of emails.
What this example does not take into account is the cost associated with developing the email list. There are firms that claim to have double blind opt-in lists for sale and we have seen them used effectively for certain applications, but the response rates are no where near the 1% closed sale shown in this example. List rentals from trade associations, magazines and other sources can also be advantageously used, but they are usually limited to single drop campaigns and therefore are of limited utility in a long term marketing strategy. These lists can be very good for brand awareness and special events.
Take away: Email is not free and in small quantities it will cost more than direct mail.
There are steps that a marketer can take to maximize the return that can be generated by email. Email campaigns must be considered a part of the overall marketing strategy and need to be coordinated across all channels.
Consider the following to develop an effective email program:
