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How marketers measure email is changing and will continue to change.

Where we used to look at open and click rates, today we are putting in place plans to measure email lifetime value. So what is going on?

I was reviewing results from a split creative test on a basket abandonment email recently (names removed to protect the successful) and it struck me how the methodology for measuring email results can, quite erroneously, determine how we use email marketing and develop marketing strategies.

So I thought I would combine the results here with my recommendations on how to measure email marketing.

The Past

Viewed from the vantage point of today, the past always looks more simple than today. And looking back on where email marketing has come from is no different.

There was a time (although it concerns me that some marketers are still trapped in a time warp of costly proportions) when opens and clicks were the currency that email was measured in.
Apply this to my scenario:

 

Template A

Template B

Overall

Total Sent

1,885

1,961

3,846

Open Rate

41.5%

43%

42.12%

Click Rate

28.2%

30.1%

29.19%

Clearly, reviewing this campaign based on past criteria (known today as ‘old-school blinkered view on opens and clicks’) would have led the marketer to choose Template B as the most successful and therefore the one to proceed with. But hold that thought.

There is a common agreement that email open rates are going to decline, if they are not already. Direct mail watched a constant decline of response rates from about 1998 onwards.

Email is going to suffer a similar gradual decline but not for reasons of disenchantment with the media, as was the case for direct mail, but instead because individuals, as they become more accepting of email in general, sign up to receive emails from more and more organisations and competition for attention in the inbox increases.

But this does not mean that income from email will fall…

Present

I would paint the current situation as a 3D world superceding the 2D. Most email marketers discount opens and clicks as merely a 2D measure in a revenue focussed 3D world.

The 3D slant is effectively attribution of income. You cannot assess a channel without direct results for that channel and cannot invest effectively without accurate historical results.

One could also develop this analysis to fully incorporate indirect media attribution analysis that provides marketers with not only the direct income results by channel but the overall effect of marketing investment one channel has on another… sometimes referred to as the ‘Halo Effect’.

But that is not for now. Instead, look at the revenue results for the different templates.

 

Template A

Template B

Overall

Total Sent

1,885

1,961

3,846

Open Rate

41.5%

43%

42.12%

Click Rate

28.2%

30.1%

29.19%

Orders

112

94

206

Revenue

£1,763.56

£1,592.86

£3,356.42

A.O.V

£15.75

£16.94

£16.29

Conversion (Click to order)

50.9%

37.15%

43.55%

Therefore, the choice of Template B as defined by the criteria of the past is seen to have cost this business 20% of all orders. The previous methodology ignored click to order conversion, far higher from Template A. 

The focus today is very much on income and conversion rates underpinned with a growing focus of loyalty and eCRM managed through the email channel. It still amazes me when we meet with an organisation that does not have proper attribution.

Strategic planning also has one more key measure: Cost per order. Email is a growing channel with, in general, static direct costs.

As I argued in my previous blog, organisations should be searching for the tipping point at which these changes push email to the lowest CPO of all channels, below PPC and Affiliates, opening up the opportunity for disproportionate investment in email as the most cost effective channel.

The future

In short, what I am arguing here is if used correctly, email can be the CRM tool of the future and not simply a tool for generating income.

An opt-in list is a list of individuals who have said to you ‘yes, send me stuff and talk to me’. Think about how valuable that is. Never before have marketers had consent to sell to people!

So, as email develops as a CRM tool, then so Lifetime Value (LTV) measures must rise as a primary measurement.

In the example below, taken from a live analysis, similar brands are compared to show that, on an annually calculated basis, the LTV of one brand's email marketing is clearly suboptimal and an opportunity of at least £1/2m presents itself.

Database Size

Total Income last 12 months

Average Income per Email Address

Total Number of Orders

Average No. of Orders per Email Address

Brand A

241,099

1,059,504

£4.39

5307

0.022

Brand B

95,182

590,623

£6.21

3500

0.037

Before you all comment on the limited nature of the LTV in the analysis above, this is, in my experience, where it starts, looking at the value of a customer on your database.

Once you start to do that, then the challenge is no longer to increase your open rates, it is to grow lifetime value.

That, as they say, is a whole new ball game.

Image credit: aussiegall via Flickr

Matthew Kelleher

Published 18 January, 2012 by Matthew Kelleher

Matthew Kelleher is commercial director as RedEye and a contributor to Econsultancy.

27 more posts from this author

Comments (1)

Tim Watson

Tim Watson, Email Marketing Consultant at Zettasphere

Great post and have to agree you are right on the money with this. I've been working on a new whitepaper about metrics and this is very much in the same vein, particularly around what metrics are important, or when they are important.

Initially in repsect of the range of metrics I've likenend to making a journey. My draft text for the intro goes like this:

As the saying goes, ‘if you don’t know where you are going any road will get

you there’. The extension of this is you have to know where you are before

you can plan your route to get there.

Measurement and metrics are the means to manage:
• Know where we are now
• Judge if we are heading in the right direction
• Understand the speed we are traveling at
• Know how far we have to go
• Predict when we might get there
• Manage diversions when there are unexpected roadwork’s

Whilst those are some of the key metrics that closely represent the objective

of travelling to a destination, the journey involves more metrics still, the

amount of fuel in the car, the engine RPM and temperature.

Some of the metrics are primary indicators of overall success whilst others

are secondary but server a different purpose, to allow the journey to be

completed. Thus some are for operational and diagnostic use and others are

the metrics to track and to improve.

Does this make sense?

BTW its a DMA whitepaper I'm working as part of Email Council activity, for which you previously contributed and now by your colleague Tim Roe.

over 4 years ago

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