With more active users than all other social media channels combined, it’s no surprise that email continues to be the most powerful marketing tool out there today. With its vast reach and limitless potential, you want to make sure that your email campaigns are performing as well as they should.
You’re probably already tracking a handful of email marketing metrics to measure the success of your email campaigns, but do you know exactly what these metrics mean? And more importantly, how can you optimize your campaigns to get those metrics where they need to be?
The internet is chock full of advice on email marketing metrics, so much so that it can be pretty overwhelming. While a lot of the info out there is helpful, it can also be contradictory and confusing.
Chad created a metrics “matrix” that breaks down all the important metrics at three different levels:
- Campaign level email marketing metrics
- Channel level email marketing metrics
- Customer level email marketing metrics
Throughout this post we will explain each email marketing metric in more detail.
Campaign Level Email Marketing Metrics that eCommerce Companies Should be Tracking
Email Open Rate: Getting Your Email Read
You’re probably aware that open rate is tracked using a unique embedded tracking image or pixel and when the email client requests the pixel, this is when an “open” is recorded. For the email to be counted as an open, images must be enabled or the recipient must interact with the email by clicking on a link in the email.
There is some controversy with this metric and many marketers feel open rate does not give an accurate picture of real data because of these measurement flaws.
Because many people use image blocking software, sometimes an email is opened without being counted, hence some of the controversy. Open rate is a difficult, but important metric to keep track of in your email campaigns.
As we know, even if an email was opened, there is no guarantee that this same email was actually read. On the flip side, if a customer’s settings are set to “images off,” the email could be opened and read and, sadly, never recorded as such. An ESP will also record an “open” if the email is selected simply so the recipient can delete it. You can see how a true open rate is obscured by these many moving parts.
We can also further break down the open rate into the number of total opens vs. the number of unique opens. For example, if a customer is opening the same email 10 times, this is a somewhat different scenario than if ten different customers were opening an email.
Unfortunately your open rate is never 100% accurate, but it can give you an overall idea of what/how many emails are being open and/or read. Open rates can also gauge the effectiveness of your emails “From Name” and subject lines.
Because of difficulty measuring the success of an open rate, one cannot rely on open rate alone to measure the success of a given campaign.
Quick Tips on How to Improve Your Email Open Rate:
Brand your messages
- People are more likely to open emails from companies they love.
Extend your content range to engage
- Perhaps customers are not opening your emails because they know that you’re always trying to sell them something. If that’s the case, we don’t foresee your open rates improving – customers are now very aware of marketing techniques. Instead try to engage them with different content. Recipes, advice, how-to’s, etc can help diversify your content, plus who’s to say you can’t throw some self promotion on those emails, too?
Strengthen your subject lines
- This perhaps is something we talk about too much, but for good reason. Every other metric is dependent on whether an email gets opened or not. Use testing to strengthen your subject lines and beef up your campaigns. Once you know what gets your customer’s attention, you can implement the changes that will get you an open and not a one way ticket to the trash bin.
Know your audience and segment
- Not everyone on your lists are as interested, or as engaged with your product as you’d like them to be. So why send to people who won’t open? Instead, use segmentation to learn how your customers behave (with your campaigns and/or through their purchase activity) and what types of campaigns they will interact more with. This will help you create a more engaged audience–and allow you to know who is more likely to open, click and buy.
Count your emails
- Sending too many emails (or too little) can hurt your open rates. Look at your marketing strategy as a whole and count the number of emails you’re sending per month – in total. Then come up with a testing strategy where you can test whether sending more emails (or less) will increase open engagement. You can also give your customers the option to pick and choose how often and the type of emails they want to receive. This point may be the best option since customers are pre-segmenting themselves by selecting to be in certain campaigns that are of real interest to them.
How To Calculate Click Through Rate (CTR), Formula Included
Click through rate (CTR) is a measure of the number of recipients that click on any given link within your email.
When a recipient clicks on a link within your email, this is counted as a “click.” Much like open rate, many people find unique CTR a more useful measure of success. Even if a recipient clicks on a link multiple times, it will only be counted as one click, allowing for a more accurate picture of your customer’s engagement.
So what is considered a good click through rate? CTR’s can fluctuate drastically depending on industry, content, and segmentation. Usually, the entire goal of an email itself is a click, so a high CTR means that your campaign is right on track.
Your CTR allows you to measure how effective your campaign is. More often than not, B2C campaigns tend to have lower CTR than B2B. If your CTR numbers are pretty handsome, then you can high five your marketing team. If not, you can improve them.
CTR comes with several variations, though the most common and perhaps useful– is when you adjust your CTR by removing the impact of the open rate in order to measure just how your copy and CTAs are working together.
Another useful variation of CTR comes from dividing click-throughs by messages sent, instead of messages delivered. Moreover, you are also able to use the unique number of click-throughs (by different users) and divide that by the total number of messages delivered. This will make sure that you are measuring the clicking impact that occurred within the number of emails that actually made it to a customer’s inbox.
Regardless of your CTR formula, you must make sure that such is applied to all of your campaigns so that you have a uniform way to analyze campaign data.
So how can you improve your CTR? Let’s start with the basics:
What is your main CTA–what do you need your customers to do next?
- Make sure that there is a clear CTA in your emails. Whether you want to get customers to purchase something, read your blog, find out about new products, etc., your customers won’t know what to do next unless you tell them so by giving them direction, you’re helping to improve your CTR.
Is it possible that your content is cluttering your CTAs?
- Can they find your CTA? If you have more than one link you’d like them to click on, are these apparent? Customers will not click on something they don’t know they can click on so make sure that your links are styled in a way that they are evident and functional.
- This case study shows how stripping away a lot of content helped increase conversions.
Are your emails mobile responsive?
- With mobile opens increasing, most customers won’t bother to go through emails that are not mobile friendly. Your content and CTAs may not be showing in a visually appealing or even functional way, lessening the chances that they will be clicked and interacted with.
Do you have bulletproof buttons?
- If you are using images as your CTA’s and your readers are blocking their images, your CTA’s will never be seen. Litmus has a great post on how to code buttons that will work everywhere, every time.
Click to Open Rate (CTOR): How to Calculate it & What is a Good CTOR?
The click-to-open-rate has been around for quite some time, however there is renewed interest in this metric as emphasis is increasingly being put on user engagement. Most email marketers focus a large part of their efforts on open and click through rates, Sadly, many ESP’s don’t even display this metric, but that doesn’t mean you shouldn’t be measuring it. We get the click to open rate or CTOR by dividing the number of unique clicks by unique opens and expressing this as a percentage.
CTOR tells us what percentage of recipients that opened the email actually clicked on a link, so it can be a very useful indicator of your customer’s engagement with the email content.
Some analysts argue that CTOR is a weak metric to measure because the unique opens on which it is based are never accurately recorded. However the importance of CTOR cannot be overlooked as it provides valuable information about your customer’s expectations before they open your email and what actions they take after.
CTOR measures your customers reaction to the email content itself. A low click-to-open-rate can reveal inconsistencies with your customer’s expectations and what you are actually delivering to them. Did your subject line promise them one thing, but then upon getting to the email’s content, they were met with something entirely different?
So What Is a Good Click to Open Rate?
With any metric, it can depend on a number of factors, including industry, segmentation, etc.
In IBM’s Email Marketing Metrics Benchmark Study they found that industries with the highest median CTOR included:
- Nonprofits, Associations and Government: 17.5%
- Computer Hardware & Telecommunications: 13.1%
- Retail & eCommerce: 12.7%
And the lowest performers were:
- Lodging, Travel Agencies & Services: 7.4%
- Schools & Education: 7.3%
- Insurance: 7.1%
Here are a couple of things you can do to improve CTOR:
- Run A/B Split tests on your next campaign to find out what’s working and what’s not
- Test for optimal time of day to send
- Test several different subject lines
- By doing this repeatedly, you will get to know what is the best subject line style, tone, etc. to draw your customers into your emails
- Test different CTA styles
- Are your call to actions better as buttons, or would they work as links inside your copy? Maybe, even, a combination of those two. Though remember that you want to keep one main purpose – a known action you want your customers to take next – for all links you use.
Email Open and Click-Through by Device: Mobile vs Desktop
It should come as no surprise that an increasingly high percentage of emails are being opened and read on a mobile device.
If you’re anything like us, and consider your mobile device as simply another bodily appendage, chances are you are opening quite a few of your emails on your phone. Again this varies widely by industry, but it can’t be denied smartphone usage is changing the email marketing landscape at a rapid pace.
Some studies show mobile opens to be as high as 63% in some industries (pre-2011 it was consistently under 10%).
So how does this affect how your customers engage with your email content? Naturally, marketers are spending more time and money on mobile email marketing, and must somehow measure the success of their efforts.
As the number of mobile users continues to increase, you want to make sure that your campaigns are optimized for mobile by coding them accordingly. We talked about this in our previous post about the lessons learned from TEDC15, but it’s important to know that there are various approaches to coding emails responsively:
Making sure your emails are being developed for both desktop and mobile is important and should be a prominent part of your marketing strategy. Emails are sent to the customer’s inbox, and now that inbox is constantly changing every time an email is opened, viewed, clicked, etc.
Spam Complaint Rate: Avoid Getting Marked As ‘Spam’
Fortunately (or unfortunately depending on who you ask) customers have the power to report something they don’t want in their inbox. If your customers are clicking the “report as spam” button in your email, you’ll want to remedy the situation ASAP. These clickers can damage your name as a legitimate marketer and cause more headaches down the road with your ESP. Avoid spam complaints by only sending relevant content to customers who have agreed to receive it in the first place.
- Avoid sending from a third party.
- Be honest in your subject lines.
- Keep your email list updated.
- Send from a consistent address (do not use “noreply” etc.)
- Keep your unsubscribe link easily accessible.
Do you know that some emails go to spam without someone sending them there? Here’s why:
Every ESP is using different guidelines in filtering spam, and even permission based emails sometimes get sent to the spam folder. ESP’s don’t make public their individual filtering rules as this would make it easier for spammers to get around them. This makes it all the more difficult for legitimate marketers like you to stay out of the spam pile. However if you are true to your content, honest with your customers, and avoid gimmicky copy, you should be able to steer clear of the dreaded spam folder.
Unsubscribe Rate: How to Calculate It (and Keep It Low)
It’s generally accepted that a good unsubscribe rate is below 0.5%.
You Can Keep Unsubscribe Rates Low By:
- Maintaining a clean email list.
- Not spamming your customers.
- Regularly reviewing content for potentially “spammy” or offensive content.
- Keeping your unsubscribe link visible (this may seem counterintuitive, but with an easily accessible unsubscribe link, you prevent further frustration and leave a lasting impression as a fair and reputable sender. Plus, it will save you countless of emails back and forth with your customer service to get customers unsubscribed. Less friction means happier customers – even if they don’t want to receive anymore emails).
How to Reduce Your Unsubscribe Rate:
- Create value. People won’t unsubscribe from your emails if they see a take-away from the offers, newsletters, etc. that you’re sending.
- Be consistent. Why did a customer unsubscribe from your emails? Perhaps they were bombarded by too many and opted out. However it’s also possible that they hadn’t heard from you in awhile and just decided to unsubscribe. The key here is to be consistent with your pace and timing to avoid scaring off or forfeiting your recipients.
- Let people know that they can opt-out. This is more than just adding an unsubscribe link. Perhaps, you make it obvious on the first email of your campaign that customers can opt-out of receiving offers, newsletters, product notices, etc. Again, you are helping to filter customers who are engaged in order to get your data from customers who want to be part of specific campaigns.
Email Campaign Success & KPI’s to Watch
Conversion rate is often seen as the most important metric to look at when measuring the success of a given email campaign, and for good reason. Conversion rate is the percentage of recipients who clicked on a link in your email and then went a step further and completed a desired action (purchasing a product). In a few words, the total campaign response. Turning browsers into buyers is the ultimate mark of success in your email campaigns.
Conversion rate is influenced by factors outside of the original email. If your numbers are falling below you conversion targets, you might want to take another look at what is in between completing a purchase, making a new purchase, etc.
If customers click but then don’t go through with a purchase, quality issues with your checkout process might be what is hurting you. Perhaps, shipping costs are not clear, or maybe customers have too many fields to fill in order to make a single purchase. Many of these issues are more internal than you think.
Take a look at this chart from MarketingSherpa that gives average conversion rates by product type:
A way to create even better data is by dividing the number of actions taken (conversions) by the number of click-throughs.
Perhaps, within one campaign, you have customers who bought more than once just by being influenced by the emails you sent them. Thus, data like this might help you in the future to know which customers are engaging with your campaign the most.
Quick Win to Improve Conversions:
Frame your campaigns in order to create a compelling reason to act upon your emails. Here you can use copy and imagery to solidify your CTA’s, increase CTR and engagement to potentially increase your conversions.
How we measure the success of any campaign is open to interpretation as marketers have long been faced with the challenge of a lack of uniform standards for email metrics.
With so much going on in your campaign already, it can be difficult to keep track of all the numbers and percentages flying around, however these metrics are an essential component of any campaign and cannot be overlooked. From the size of your email list to how many people purchased your product, each metric has an integral role in determining the overall health and effectiveness of your email campaign.
Channel Level Email Marketing Metrics That eCommerce Companies Should be Tracking
Email List Growth Rate & Size: How to Keep Your List Healthy
Are you sending to 50 or 5000 people? The overall “health” of your email list can tell alot about the direction your campaign will go. It’s extremely important to have a grasp on how many people are interested in your product and potential conversions and leads.
An unhealthy email list can also cause a lot of problems down the road. Maybe a cutthroat competitor spammed your email list by signing up with a batch of bad email addresses.
Unfortunately this is a common scenario, but you can combat these malicious marketers by keeping your email lists happy and healthy with a watchful eye.
Maintain healthy email lists by removing any bad addresses, visually scan email lists for common typos. It’s important to be proactive with your email list, as these small issues can often lead to larger headaches. More on this when we talk about bounce rates and delivery rates.
If your list is smaller, it’s likely that the customers on this list are more invested or interested in the product, which should result in a higher open rate. A larger email list can signify a broader and less interested consumer base, which usually will result in lower open and click through rates.
It’s also important to measure how quickly/slowly your email list is shrinking/growing. Is your list growing at a rapid rate? Awesome! But be aware that a larger list can also drive down other key metrics like open rate and click through rate. If your list is growing at a snail’s pace, that’s to say, little or not at all, you may want to take a look at your campaign strategy as a whole.
How Can I Grow My List?
Having a clear strategy for building your email list is essential to maintaining a successful online business. The first step in growing your email list is focusing on content. Customers will find your site because your content is strong and engaging and they will keep coming back for the same reasons.
- Make sure your call to action is unmistakable. Think popups etc. (use cautiously)
- Give users multiple opportunities to subscribe
- Trade users something valuable for their email address (offers, hidden content)
- Use social proof (join 18,000 subscribers…)
Email Bounce Rate Benchmark & Industry Standards
Soft bounces include emails that are rejected for a couple of different reasons. In any case, the email address is most likely valid with a soft bounce. Maybe the recipient’s inbox is full, the message is too big, or the server is down. Unfortunately this is something you have no control over and there’s isn’t much that can be done on your end to prevent these soft bounces.
Hard bounces are a different story. Like the name suggests, a hard bounce is a permanent rejection of an email. Messages are permanently denied because the email address is invalid or the server has blocked it from reaching its recipient. Hard bounces also occur for a variety of other reasons. Like a person who shuts down/deletes their email addresses, etc.
To prevent hard bounces…
- Make sure you are updating your contacts list regularly
- Scan for typos, automatically remove bounced addresses from your list
Most ESP’s monitor bounce rate and can block incoming emails if your bounce rate is too high. It’s important to be familiar with your particular ESP’s bounce rate policy. All the more reason to maintain a “clean” email list and keep those bounce rates low.
You should aim for a bounce rate as close to 0%, but these things can happen outside of our control, therefore between 2-5% is optimal.
Bounce rate is closely tied in with the overall health of your email list. Make sure your list hasn’t gone stale. An email list grows stale when you aren’t sending subscribers the emails that they signed up for. Subscribers may have changed or deleted the addresses they initially signed up with, which – as we previously mentioned – can cause those pesky bounces. Additionally, spam complaints and unsubscribes can be generated when people see emails they don’t remember signing up for or have forgotten about. This is something you definitely don’t want.
The charts below from MailerMailer break down bounce rate by frequency and industry. In the first graph they points out that mailing more frequently leads to a lower average bounce per send.
Why? Because your email address and the campaigns you run with it are staying in your customer’s head/inbox. This allows them to recognize your emails while staying relevant. However, remember that there is a difference between sending to stay relevant and sending just to send. Make sure content is relevant to your customer.
The second graph looks at bounce rates per industry. We see that Family Services, IT Services and Science and Biotechnology have the highest bounce rate.
If your products fall in these categories you may want to make an extra effort to ensure that you are sending relevant content and keeping your customers engaged.
Email Delivery Rate: How to Rise above the Benchmark
Email delivery rate measures the number of emails not rejected by the receiving mail server.
Although emails that end up in the customer’s spam or junk folder are also considered “delivered,” this is still a good measure of how many bounced emails resulted.
If you find yourself with a low delivery rate, chances are you have some bad apples lurking in your email list. You’ll also want to make sure that your ISP is automatically removing hard bounced emails, and if not you’ll need to remove those manually to keep your delivery rate where it should be. (You can test your Delivered Rate via Mail Tester.)
How to Improve Your Email Delivery Rate
- Remind subscribers to add you to their email list
- An option you have is to ask subscribers “to view all images and links, please add…”
- a phrase that is commonly seen in many emails. Perhaps a good strategy will be to add this to the subscribe confirmation email you send to your subscribers.
- Use both images and text – as well as “alt” text in images as a fail-safe
- This provides a safety net if images don’t show up because of a subscriber’s email preferences.
Email Reputation: Ensure Your Emails Are in Good Health
While not a metric on its own, email reputation is extremely important to overall email channel health.
Email reputation is the measurement of your email sending methods and your adherence to the guidelines established by ESP’s. Many marketers think of email reputation much like a credit score. Every sender has one, it takes time to build a good reputation much like good credit, and it can easily be tarnished by small mistakes.
Undelivered emails, spam traps and complaints are the most common ways senders gain negative email reputations.
If your sender score is low, chances are, ESP’s will apply more stringent filtering criteria to the emails and campaigns you send out. If your IP address has a poor reputation, it will make it that much harder to ensure your emails are making it into your customer’s inboxes.
Return Path reports that 83% of the time an email is not delivered to an inbox, it is due to a poor sender reputation. There are many websites out there that allow you to check your sending reputation. Most are free, making it easier than ever to know where your reputation stands and if steps are needed to get back on the right track.
Inbox Placement Rate Explanation
Inbox Placement Rate (IPR) measures what percentage of sent emails actually end up in a recipient’s inbox.
Remember that sent emails include blocked emails and emails sent to spam, so this metric is often considered more valuable than simply measuring sent emails.
Unfortunately it’s not enough to simply know that your email has been delivered. IPR tells you how many emails are actually getting to a customer’s inbox, where they have the best chance of being opened and read.
The bad news is that in average 13% of permission based emails sent in the U.S. are still not delivered. Take a look at these awesome graphics from MarketingLand that break down global deliverability rates across countries and industries.
We see that Australia and Germany got the most emails into the inbox, while the U.S. is slightly above average with an IPR of 87%.
The Health and Beauty, Food and Beverage, Insurance, Apparel and Automotive industries are the clear winners in this race, each with over a 91% IPR or above. Ironically, software and internet business performed the worst with just over a 40% IPR.
Email Inactivity Rate
With inactive users, the lights are on but nobody’s home. Their email addresses are still valid but they are no longer interacting with your email messages. Your messages aren’t bounced, opened, unsubscribed, or even sent to spam complaint. This is not only frustrating, but can also be damaging the true picture of your campaign as a whole.
However, before you go and excommunicate any and all users who haven’t clicked or opened in the last six months, you should take a closer look at the past behaviours of these customers. You risk losing customers that may purchase sometime in the future.
It’s best to have a clear plan in dealing with these dormant users. Be careful how you define inactivity. Many marketers use cutoffs at 6, 9, and 12 months without any opens or clicks. But by doing this you aren’t getting the whole picture.
- Has there been no activity (email and on-site) since opt-in?
- How frequently are you sending emails?
- The less emails you send, the more time it will take for a user to qualify as inactive.
Make sure you separate the truly inactive users from those who may potentially purchase something in the future.
Also ask yourself why users are going (and staying) inactive. Usually we stop doing something because it no longer satisfies our needs or adds value to our lives. Before you slash a whole bunch of users from your list, make sure your campaign is where it should be. Think of all your efforts in getting these customers on your list in the first place. It takes seconds to remove an address from your list, and once these folks are gone, it’s usually a permanent separation.
The takeaway here is that inactive users still have the potential to be reactivated if you take the time and effort required to to do so. Attempt to reconnect with once active users. Let them know they are sorely missed and offer them incentive to return.
Open & Click Reach
Open reach measures customer engagement. It is a measure of the percentage of your customers who have opened at least one email over a given time period.
Open reach is a metric that stands out from the pack in that, rather than measuring campaigns, it looks at customer behavior as a whole. Open reach goes one step further than open rate. Keep in mind that a large portion of total revenue comes when customers who have never opened your email, or open your email for the first time.
Converting non openers to first time openers is similar to converting inactives to actives. Email is all about ROI at every level.
Acquisition Source Metrics
Customer acquisition cost (CAC), as the name suggests, is the cost it takes make a customer actually buy a product or service. CAC is measured by taking all marketing costs for a given period and dividing by the number of customers that were acquired during this same period. For example if your marketing costs were $10,000 and you acquired 1000 customers during a given period, your CAC would be $10.00.
UTM (Urchin Tracking Modules) are a great way to keep track of where your visitors came from. Do they come from Twitter, Facebook, your snazzy new landing page, perhaps an email campaign you’ve been running. UTM’s are a map to know more about your customers.
Links that are usually UTM tagged are the most valuable – in comparison to the ones that your visitors can manually type. The reasons for this are obvious. They have a clear strategy with a clear objective. Your visitors will often not notice the difference in the length of a URL, but adding UTM parameters to your campaign allows you to know more about what is making a difference in your marketing efforts.
Google’s URL Builder Tool can help you properly tag your URLs. It allows you to add up to 5 parameters to your URL:
- Campaign Source (utm_source)
- Campaign Medium (utm_medium)
- Campaign Term (utm_term)
- Campaign Content (utm_content)
- Campaign Name (utm_campaign)
Email List Churn Rate
Remember how we talked about growing your list rate? Well churn rate is the list growth rates evil step sister that wants to destroy her at all costs.
Email list churn rate is the number of subscribers who leave your list in any given time period.
List churn swallows up to 30% of your email list every year. You need to make sure your growth rate is more than your churn rate. If not, you can build and build and build your list, but it won’t get any bigger. Sounds like a sisyphean nightmare right?
There Are Two Types of Email Churn:
- Transparent / voluntary churn – This includes unsubscribes, hard bounces and spam complaints. Your are not allowed to reach these users anymore. Move on.
- Opaque / involuntary churn – readers who ignore your emails and unengaged customers. Your emails are going into their spam and junk folders or they are piling up in an email address that rarely, or ever, gets checked.
How Can I Reduce My Email Churn Rate?
- Reach out to customers who cancel a service
- This can include exit surveys and also seeking out these customers after the fact. While it may prove difficult to get a real live customer (who cancelled) on the phone, the wealth of information this interaction can provide you is invaluable to optimizing your campaign.
- Provide an alternative to the dreaded “unsubscribe”
- Allow recipients to “downgrade” the number of emails they receive from you rather than opt out completely. (“Too many emails? Click here to receive only monthly emails.”)
- Or, in a similar fashion, ask them to manage/update their email preferences at the unsubscribe page. Perhaps they just need to be able to tell you what they want/like and what doesn’t do it for them.
- Segment your customers
- Send more relevant content to subscribers based on behavior and preferences. Test segmentation by date of sign up, purchase history, and geographical location, to name a few.
- Be proactive
- Spot red flag metrics. Identify customers who are on their way out before they actually opt out. Offer them something in return for their continued loyalty.
- Could you start sending them dedicated emails to win them over? Perhaps hitting them up at different levels of their CLV by using win-back campaigns, replenishment, etc.
Email Channel Success
What good is a fantastic email campaign if you can’t quantifiably measure its success? Opens and clicks alone won’t tell you the true success of a given campaign.
ROI – While there is no other metric that tells you exactly how much profit you are bringing in, ROI is notoriously hard to calculate. Often the “true cost” is difficult to define and varies from business to business, industry to industry.
Customer Level Email Marketing Metrics That eCommerce Companies Should be Tracking
Consumers are bombarded daily by emails vying for their attention. Thousands of eye catching emails sing the praises of the newest product, offering deals and discounts and more value. To gain the competitive edge in this increasingly saturated market, you must know who your customers are, how to keep them and how to acquire new ones.
However eye catching your emails may be, if you are not knowledgeable about your customers, you may be throwing away valuable time and resources. In this post we’ll talk about customer level metrics that can help you optimize not only your email campaigns, but get the most out of your entire relationship with your customer.
Customer and Subscriber Lifetime Value
Think of your relationship with your customers as a curve. On this curve, your customer will go through several phases – much like any relationship. This one, however, starts with a purchase.
There is a wealth of information and qualitative data you can gather from their first purchase and subsequent ones. The number of purchases they make as well as how frequently they buy, are clues to just how engaged a customer is with your brand and product.
Customer lifetime value (CLV) is a projection of the value of a given customer over their entire relationship with your brand. Customers are worth much more than simply the dollar value of the profits they generate. CLV can tell you what you will earn later from what you are spending today.
The simplest way to calculate CLV is to take the profit you generated from a given customer and subtract the money you spent on acquiring them. Wait, did you think it was going to be that easy? Here are the complex analytics behind it. Because it’s impossible to predict exactly how long a relationship will last, usually it is given within a specific time frame (12 months, 24 months etc.)
If calculating complex math formulas doesn’t sound like your idea of a good time, you’ll be happy to know there is a simpler way. With this method, we’re going to calculate on a yearly basis.
All you really need are some simple points of data and a spreadsheet. You will need to know your:
A Simple Customer Lifetime Value Calculation Example
Note: you may want to consider discounts, but this formula will help you get the basics. If you want a more complete method then you’ll want to use the spreadsheet below:
The Full Customer Lifetime Value Calculation Example
Calculating in years gives you a more realistic, longer term perspective. We recommend using about 5 years, though this example only uses 3. We’ve marked in yellow the areas where calculations will happen, while the blue cells contain data that you should already have. If you want a super simple and easy approach there are several calculators that may help you get your numbers fast.
Why is CLV so important?
CLV is crucial to understanding your customers and can be a powerful tool in allocating marketing resources. While it is easy to calculate how valuable a customer is based on their past behavior, predictive CLV calculations can also give you insight into how a customer’s value will shift over time.
So what if you are only interested in the value of a customer as it relates to a given email campaign?
This is where Subscriber Lifetime Value (SLV) comes in. SLV is about customer activity and how they interact with the conversations (emails) you send. Profiling customer behaviour is essential for companies focused on selling more to existing customers.
SLV is great for retaining customers, but it also tells you which customers you need to focus more on to hold on to.
Why is this important? You probably want to know the dollar amount of gain you are getting from every email you send, as well as what you can afford to spend to acquire new customers.
Here is the magic formula:
Note that the formula here goes month to month so calculating the lifetime value of your customers as a whole may seem like the right thing, but it is proven that a month per month basis is more helpful in terms of subscriber value. You have a clearer idea of what your emails are making every month allowing you to use diverse email tactics (perhaps apply what you learned from the results of your last A/B test – for example.)
As you can see email subscriber lifetime value is similar to customer lifetime value, but we are instead using the email subscription. We are looking at the profits of an email subscription, not the total profits of the customer as a whole.
To get the lifetime value of an email subscriber you need:
- Number of active subscribers (per month)
- Only the users actively subscribed are capable of generating revenue via email. Bounced addresses and unsubscribes are inactive, but so are subscribers that have stopped opening and clicking. It’s up to you to decide when subscribers become inactive.
- Email marketing generated profits
- Make sure you are not including any profit generated from non marketing related efforts. Use your CRM / attribution tool to get these numbers.
Remember our CLV curve? Let’s bring it back. Essentially, you want to use this curve as a way to see where friction rises. Friction in this sense is the likelihood a customer will continue their business with your brand, whether their interest is heating up or cooling off.
The curve visualizes the various stages your customers will be throughout their relationship with your brand. The secret is knowing when to target them with the right content – personalized for their behavior – increasing impact.
As we can see, the most important times are usually at the beginning and end. At the beginning of the curve, customers are highly engaged, interested and receptive to new marketing. While at the end of the curve, engagement is tapering off as friction rises. These are the two times in the customer lifecycle that your marketing packs the biggest punch, make sure you are capitalizing on this.
What is RFM Analysis? (Recency, Frequency, Monetary)
You’ve probably heard of the marketing phrase “80% of your revenue comes from 20% of your customers.”
Meaning that a small chunk of your customer base is the source of most of your revenue.
Yup, that’s right, only a few customers are really giving you most of your profit, so it’s no surprise that most marketers focusing much of their efforts on retaining these high ticket customers.
If you’ve never heard of RFM before, it stands for Recency, Frequency, Monetary.
As a whole, RFM is a method used to quantitatively measure which customers hold the most value. It measures how recently a customer purchased, how frequently they purchase, and how much money they spend.
RFM got its start over 40 years ago, back when people would shop with catalogs. Yes, catalogs! They would pick out what they wanted from the catalog, mail in an order form and receive their package in a couple weeks time. Catalog marketers discovered three things:
- Customers who made a recent purchase were more likely to purchase again than customers who had been inactive for quite some time.
- Customers who purchased more frequently were more likely to buy again than infrequent purchasers.
- Customers who spent more had a higher chance of buying again than someone who spent less on a purchase.
While the days of mail order shopping have been replaced with drone-powered shipping and one-click purchases, these same principles still hold true in today’s e-commerce marketplace.
RFM is a valuable marketing strategy because it allows you to identify which customers are generating the most profits and what it takes to keep them coming back. Furthermore, in looking at the behaviors and preferences of these most valuable customers, you will be better equipped to go after these same types of customers when acquiring new ones.
How to Calculate RFM Scores
You need these 3 things:
- Most recent purchase date
- Number of purchases within a given time period (usually a year)
- Average sales per customer
Your best customers will have the highest scores. You can now analyze the behavior and preferences of this particular group of customers and what sets them apart from the pack. You have a wealth of data at your disposal. Use RFM to focus your efforts on the most responsive segments of your customer base.
What Email Campaigns Can Be Used to Keep the 20%?
Everyone likes to feel welcome right? We are emotional beings that need to feel wanted and included. The email world is no exception.
Welcome campaigns are a series of automated emails that trigger after a subscriber opts in. Rather than a generic email to a subscriber to confirm their opt in, a welcome program aims to build a solid relationship early on in the process through a series of automated emails. Welcome programs aim to engage a customer while they are fresh off their opt in.
However we know that customers are constantly bombarded by other options—newer, cheaper, shinier, so it’s easy to see how interest can drop off as little as two weeks in. As evidenced by waning open and click rates, it pays to capture your customer’s attention early on and maintain a strong presence in their inbox.
Elements for an engaging welcome email:
- Thank you
- Contact info
- Links to relevant content
- Clear and concise copy
Here are two examples you can model…
VIP customers are those on your list that qualify as highly active and engaged with your brand, they also tend to have the highest CLV and SLV scores. These campaigns are targeted specifically to these big spenders and the aim is to increase loyalty. Big discounts and incentives are usually offered to these customers. It pays to keep them satisfied.
Here’s a campaign example from Sephora…
What Campaigns Can Be Used to Target Customers That Haven’t Bought in a While?
Re-engaging old customers is far easier than trying to acquire new ones. It takes less marketing effort to give familiar existing customers some extra attention and TLC than it is to round up a whole new crop of prospects you know nothing about.
Many marketers do this with win back campaigns. These campaigns are designed to do exactly what they say–win back old customers that have gone dormant for whatever reason.
Win back campaigns are special in that they separate entirely inactive users from ones that haven’t made a purchase in a given period of time.
We recommend sending two emails in this campaign. The first email aims to reach out the customer and let them know you are feeling the pain of their absence.
Use a subject line that catches their eye:
- Where did you go, Cathy?
- We miss you, Fred.
- Did you forget about us, Sue?
The second email should offer the customer incentive to return. The goal is to motivate these customers into making another purchase and reduce customer churn.
Here are two examples from our customers….
The 2016 State of Marketing report, points out a shift in the marketing funnel. Before marketers were focusing on the acquisition portion, however now many marketers are seeing more value in retention and re-engagement, with 80% of marketers agreeing that email is core to their business.
Metrics such as Customer Lifetime Value and Subscriber Lifetime Value allows for a more accurate and bigger picture measure of the value of any given customer. Marketers can determine which customers are worth pursuing and in what areas their resources could be better spent.
What to Do Now
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