What is ROI or return on investment?
ROI is a metric that is used to calculate and measure profitability and efficiency. Email marketing ROI specifically denotes the profitability of email marketing.
At first, the difference between the end value of investing in email marketing strategizing and the initial value is calculated. The difference is essentially the net return of investment. The net return is divided by the total costs accrued and then multiplied by 100 to get the % or the Return on investment.
ROI = ((Final Value – Initial Value)/total costs accrued) * 100 %
Before answering the question on how to calculate email marketing ROI, let us understand why you should track email marketing ROI?
Why should you track email marketing ROI?
The benefits highlighted below will help to understand why it is necessary or a good practice to track email marketing ROI.
- Increase in website traffic – Entrepreneurs and website business owners are always on the verge of trying various techniques or strategies to increase website traffic. But you need to understand how strong or efficient is your marketing strategy, of which email marketing occupies a vital portion. By measuring the email marketing ROI, you can gather good insights into the effectiveness of the strategies and what can be done more to increase the website traffic.
- Awareness of brands – A vital point for success in online business or website popularity, is to increase brand awareness among the potential customers. Email marketing campaigns and advertisements help a lot to connect with the target audience to arouse interests on the company brands. But to measure the success of such campaigns or even to understand the drawbacks, email marketing ROI should be calculated and tracked.
- Generate higher revenue – You must maintain a balance between the expenses and the revenue earned. There are costs involved in investing in email marketing strategies and campaigns. Email marketing ROI helps in tracking the expenses and costs; thus helping in adjusting the gains for higher revenue.
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How to calculate email marketing ROI?
Now let us focus on how to calculate email marketing ROI. There are 4 steps to follow for the same, elaborated in the sub-sections below:
Finalize your email marketing goals
The first step is to brainstorm and finalize your email marketing goals and objectives. The questions that you must ask yourself is:
- Whether your target is to gain potential customers?
- Are you interested to increase brand awareness?
- Is your focus mostly to enhance the sales
- Do you want to increase the website traffic?
- What is your revenue target?
These questions will help you to define the goals of email marketing strategies and techniques to be applied.
Once this step is settled, you can better track your ROI and relate that to the goals. You can understand the benefits achieved and balance that to the expenses incurred.
Calculate your expenses for email marketing
You need to track your expenses for email marketing over the duration you are looking for – be it a month or quarter or a year. Besides, you need to list down the components which comprise the expenses.
- Software or the application used for email marketing. The costs involved in the installation of the software, configuration, and design, generating reports and analytics, and maintenance need to be considered.
- Wages or salaries of employees. You need to calculate the number of hours spent by your employees in email marketing. If the employees are to be paid based on some fixed hourly rates then you need to calculate the payment to be made accordingly. While defining the hours spent, you need to check out what % of the total time is being devoted by the employees for email marketing. Also if you are estimating the expenditures monthly or quarterly, then you need to consider the hours as per the duration assumed.
- Other expenses. You must not miss out on any other expenses related to email marketing. This is necessary to derive an accurate ROI. There can be expenses related to fees for social media management, consulting fees, or any other expenses related to media, images, expert audit or review, and special design ideas. Recommendation is to not miss out on any of these expenditures.
Benefits calculation or Analysis of email marketing
Before calculating the ROI, it is important to perform the valuation or benefits analysis of email marketing. The leads generated and the sales completed on successful email marketing campaigns form a crucial part in calculating the benefits or the value.
You can leverage various tools and software to find out the total sales and leads generated out of email marketing. Best is leveraging Google Analytics or any other platform that is capable in generating advanced analytics and dashboards. You can check the data for each email campaign based on the time duration you are looking for.
The data from analytics tools or software need to be studied to understand the sales and leads generated from email marketing campaigns. As it may capture conversions from various other marketing campaigns as well. An estimated valuation is needed before stepping on to calculate the ROI. Besides, it is essential to understand which leads or conversions have been beneficial to your company. The best is to calculate the selling price or value of a product or service by the conversion rate. Remember to consider the product or service which has been sold successfully to a prospect customer or target audience.
The above exercise will give you the total sales revenue. Next is the estimated value from the leads. You need to add up these two components to calculate the total value of the email marketing gains.
Finally, calculate the email marketing ROI
You have by now understood the components that are needed to calculate the ROI. Let us now try to calculate a sample ROI with the help of an example:
Let us assume that the expenses or costs incurred for email marketing for various expenditure sources is USD 500 for 1 month. Next consider the revenue gained to be USD 2000 in a month. This is the gain from the sales and leads generated by email marketing campaigns.
First step is to subtract the expenses from the revenue.
USD 2000 – USD 500 = USD 1500
Second step is to divide the result by the expenses and multiply by 100 to get the ROI.
(500/ 1500) * 100 = 33.33%
Thus the ROI for the email marketing is 33.33%.
Email marketing is a powerful tool to gain traffic, generate leads, increase potential customers and enhance the sales revenue for your website or online business. And hence calculating the ROI or return on investment on email marketing is very important to realize the benefits.
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