ROI as key performance indicator in email marketing

26.01.2010

Martin Bucher

Many marketers use typical performance indicators like open, click, unsubscribe and bounce rates to monitor performance. However, these indicators give very little information on the economic performance of a newsletter.

An indicator called the return on investment (ROI) can be helpful in this respect. This figure gives an indication of the cost-benefit ratio of campaigns: How efficient is my email marketing? Which optimization was most successful in terms of costs?

A campaign with an ROI of 100% breaks even. In theory, ROI can be calculated very easily using the following formula:

      ROI in % = Profit of the campaign / Cost of the campaign x 100

On the surface, the profit of a newsletter can be calculated simply using the figure of sales actually achieved, for example, due to product sales and seminar registrations. The campaign costs also seem to be obvious.

In practice, however, you will soon realise that it is not possible to accurately measure the return on investment. This is because it is extremely difficult to put a monetary value on many factors in email marketing and, often, it is not possible to measure them at all. ROI is blind to these factors.

Profit (return) may also refer to brand awareness, customer satisfaction, recommendations to friends, incentives to purchase and purchases that involve media discontinuities. Costs (investments) can include staff costs that arise when creating and sending the newsletter, inter-departmental services and depreciation on templates and strategy.

This blindness and inaccuracy must be taken into account and ROI should not be seen as the be all and end all. For this reason, I recommend that you not put too much effort into calculating the ROI. Values that are easy to calculate are all that is required to determine investment and return. It is more important to take a holistic, long-term approach to ROI and not to use it just for individual newsletters. Comparing your values with those of other companies is pointless as every marketing strategy, every package of measures and their implementation brings with it its own set of circumstances.

This makes ROI a useful indicator for efficient and targeted improvements in email marketing. Taking all fundamental creation and sending standards into account lays the groundwork for successful email marketing.