Justifying E-mail Budgets for 2008

By Jeanniey Mullen , December 10, 2007

Need help justifying e-mail budgets for 2008? Be prepared to think outside the tactical box. It's no longer good enough to show that your deliverability has improved to 90 percent or that your optimized creative increases clicks. Instead, your focus must expand into the ever-growing digital world. But how do you do that?

Today, a simple mathematical equation I often use to justify and win an increased budget for e-mail marketing. Its primary focus is on improving deliverability.

Deliverability impacts more than response rates for e-mail; it also drives the bottom line. For one client, I was able to show that every percentage increase in delivery rate drives $1 million in sales. Here's how to estimate how an improvement in performance boosts results.

Start with two basic facts: revenue and opt-in list size. Begin with the total revenue driven for the year by anyone who has an opt-in e-mail in your database. For example, we have 50,000 opt-in e-mail addresses and the total sales generated by those people was $20 million. Note: total sales generated doesn't have to be entirely through e-mail.

1. Determine your average conversion rate from e-mail. Start with the number of times people get e-mailed per month. In our example, the delivery rate is 85 percent (42,500), the open rate is 20 percent of delivered (8,500), the CTR (define) is 25 percent of opens (2,125), and conversion rate from clicks to the site is 35 percent (744). So here one send to 50,000 people would generate purchases from 744 people.

2. Identify your average monthly revenue as a percentage of total annual revenue. Divide the per-month revenue by the number of people who purchased for the month. In this case, $1.67 million ($20 million a year divided by 12 months) divided by 743 people is $2,244, the average monthly revenue by buyer.

3. Determine average impact. Now for the magic. Using the number of opt-in addresses; open rate, CTR, and conversion rate from step two; and the average monthly revenue from step three, determine the average impact on sales if only 1 percent of your e-mail were delivered. In our example, 50,000 x 1 percent x 20 percent x 25 percent x 35 percent x $2,244 equals $19,635 in revenue per month.

In our example, then, a 5 percent increase in delivery could generate $98,175 per month in additional revenue, or $1.18 million for the year. Given these figures, there's not a CFO out there who could resist approving one extra head count or additional vendor support to help keep your campaigns moving in the right direction.

There are many calculations like this one that can help you justify your budget. If you have something specific you're trying to justify and can't, e-mail me and I'll help you figure one out. If you have a good, effective example you would like to share, e-mail me that too.

EXAMPLE: How Increasing E-mail Delivery Rates Pays Off
One way to win approval for an increase in an e-mail marketing budget is tie performance to financial metrics. This tool is designed to help estimate the additional amount of revenue an organization can generate if e-mail delivery rates improve. This example assumes a company with annual revenue of $20 million and 50,000 opt-in e-mail addresses; the baseline was derived by assuming an 85 percent delivery rate. INSTRUCTIONS: Perform the calculations in the rows, in boldface.

Step 1: If the e-mail delivery rate is 85 percent:
A Opt-in e-mail addresses: 50,000
B Number of messages delivered per month 1
C Delivery rate 85%
D Open rate 20%
E CTR 25%
F Conversion rate from clicks to the site 35%
G Total number of conversions or buyers (A x B x C x D x E x F) 744

Step 2: And the company's annual revenue is $20 million:
H Annual revenue $20,000,000
I Monthly revenue (G ÷ 12) $1,666,667
J Average monthly revenue by buyer (I ÷ G) $2,241

Step 3: If the e-mail delivery rate is 1 percent:
H Number of messages delivered per month 1
I Delivery rate 1%
J Open rate 20%
K CTR 25%
L Conversion rate from clicks to the site 35%
M Average monthly revenue by buyer (J x H x I x J x K x L) $19,608

Step 4: If the e-mail delivery rate is 5 percent:
H Number of messages delivered per month 1
I Delivery rate 5%
J Open rate 20%
K CTR 25%
L Conversion rate from clicks to the site 35%
M Average monthly revenue by buyer (J x H x I x J x K x L) $98,039

Want more e-mail marketing information? ClickZ E-Mail Reference is an archive of all our e-mail columns, organized by topic.