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Return on investment (ROI) stands out as an important metric for businesses involved in ecommerce. ROI allows ecommerce companies to measure how effective their marketing and promotion efforts are.
- How well they perform compared to previous years or months.
- Changes that draw in more revenue.
- Customers’ reactions to changes in the company.
While it may not seem like it at first, ROI allows businesses to look at these points and identify potential problems in their business. Since email marketing still stands as one of the most beneficial channels for ecommerce, it’s important to consider the return on investment of email marketing.
Some may question the usefulness of measuring ROI in email marketing.
However, it can help your business to improve their marketing activities and thereby make more money. Here are some key takeaways that show the impact of email marketing ROI.
What Is Email Marketing ROI?
Email marketing ROI is exactly what it sounds like: it’s when a business looks at the money they spent on their email marketing and see how much of a profit they made. With a quick glance, businesses can see improvement or decline in their email marketing.
Let’s look at some of the most important things you should consider when talking about email marketing ROI.Email marketing ROI counts as any money you spent specifically for your email marketing campaign. This includes advertisement, creating targeted email marketing campaigns, collecting email lists, and other important aspects of marketing.
As you spend money and send out email newsletters to customers, you can encourage them to click on links leading to your website. From here, the email works as an invitation to go to your website and to purchase products from your business.
This becomes the end goal of email marketing. You want customers to click on the links in your email campaign. As you increase your website traffic, you increase the number of people that will purchase something from your business. This naturally happens as you expose your company to more people.
How Do You Calculate ROI in Email Marketing?
After figuring out how much money you spend on email marketing and how much money you earned, you can calculate your email marketing ROI.
This requires a simple equation that you can quickly figure out with the necessary information.
First, you subtract the money gained from the money spent, then you divide that number by the money spent. This will give you the ROI for your email marketing. If that was hard to follow, here is the shorthand version of it, as shown in the link above.
(Gained – Spent) / Spent = ROI
To give an example, if your business earned $1000 from an email marketing campaign after spending $100, then you would have an ROI of $9. This means that you earned $9 for every dollar that you spent on the email marketing campaign.
If you would prefer to work with percentages, then you can use the equation in the image above to calculate your ROI percentage. By multiplying the previous equation by 100, it will let you know the percentage increase of your money. In short, earning $1000 from spending $100 would net a 900% ROI.
What is a good marketing ROI percentage?
Logically, many marketers are trying to understand what a good ROI for ecommerce is. There are many ranges given that put a good ROI at anywhere from 7% all the way to 30%.
But the real answer is that this “good” ROI really depends on what you’re measuring. For stocks, sure it’s 7%. For large businesses, anything near 10% is great. And for small businesses, we’re looking at an ROI range of 15-30%.
While businesses can calculate ROI for their email marketing, some people may wonder how this benefits their companies. After all, it’s just information, so why does email marketing ROI matter?
Why Email Marketing ROI Matters
Some people may question why they should worry about email marketing ROI. However, there are a ton of reasons why ROI is important, and why you should calculate it on a regular basis, especially in marketing.
There are different ways that businesses can reach out to customers. Many people use social media and text messaging, so why not shift the focus to those channels instead of email?
Email marketing remains on top when it comes to ROI. As you spend one dollar, businesses, on average, earn $40 from their email marketing. This is nearly double the second closest channel (SEO) while performing much better than the others. Email marketing rakes in money and leads to more business profits.
But if people can use social media and their phones, why does email have such a high ROI? This comes down to the number of people that use email.
Check out Statistica’s Number of Email Users Worldwide from 2017 to 2023 (in millions):
As you can see from these statistics, people throughout the world still use their emails regularly. According to this chart, email use will climb to over 4 billion in 2020, showing that it is still a common and useful channel for businesses.
This means that not only is email the most profitable channel, it’s also one of the most widely-used mediums on average.
Since email still stands out as an important channel for communication and marketing, businesses continue to collect ROI data for that platform. This allows them to improve their email marketing strategies while seeing the progression that they make.
Best Metrics for ROI of Email Marketing
In order to determine what the ROI of your email marketing efforts is, we’ll need to look at a few metrics. Remember that the formula for ROI is the revenue you earned minus what you spent, divided by what you spent. The answer is then multiplied by 100 to get a percentage.
So directly, that will require you to know what your revenue and costs are (for a particular campaign or time period) and then you’ll have your revenue.
However, indirectly, there are some good metrics to know for estimating your future ROI of email marketing.
This includes, primarily, your conversions, which will be based on your conversion rate. Your conversion rate is basically how many of your email marketing recipients purchased something from you.
Some email marketing tools base this on how many recipients bought something, while others base this on how many recipients that opened your emails bought something (i.e., related to your open rates).
However, with the open rates being rendered useless with iOS 15, the total-recipient based conversion rate calculation will be the only viable one. (In general, you should take this opportunity to adapt your email marketing strategy to remove dependency on open rates.)
How to Use ROI Data for Email Marketing
Ecommerce businesses will ask multiple questions when it comes to their average customer. After all, they need to focus on the customers to effectively meet their needs and provide them with the right service. These are common questions that go through the minds of business owners.
- Does the customer like our current email newsletter?
- Have we changed something that has affected their opinion of our newsletter?
- How can we improve our newsletter?
ROI provides the answers to these questions. If you notice that your email marketing ROI increases, then your customer most probably likes your current newsletter and the information that it gives. If they didn’t like the information you sent in emails, then they wouldn’t click on the emails in the first place.
As you seek to improve and change your email campaign, you will see your ROI increase or decrease. If it increases, then you made changes to the email or provided information that customers appreciated. If it decreases, then you may have made a change that they didn’t like. Adjust your email marketing according to this information.
As you analyze the changes to your ROI, you can figure out what your customers value and continue to build your email marketing strategy towards their desires. If one type of subject line brings a higher ROI than another, use the type that brings in more customers. Give your audience what they want.
The improvements you make will depend on your customer. By looking at your email marketing ROI, you can get a general idea of what your customers want. Keep this in mind as you continue to adjust your email marketing campaigns.
Improve Your Email Marketing
You ultimately want your email marketing campaigns to grow your business, reach more customers, and increase your profits. Doing so allows you and your eCommerce store to succeed. Even if you don’t know how to improve your email marketing, you can start by building and maximizing your ROI.
You may wonder how to use email marketing to grow your business. You can do so by implementing your email marketing strategy, looking over metrics, and finetuning your strategy so that you can improve it. Here are some simple ways that you can improve your email marketing strategy.
- Lower your bounce rates.
- Improve your subject lines.
- Give a simple call-to-action (CTA).
If your emails don’t reach your customers, then you can come across issues. This is why you need to minimize hard bounces and soft bounces. You can do this by making note of soft bounces and removing hard bounces from your email list.
The first thing your customers will see is the subject line. You need to create subject lines that make customers want to click on your emails. If they don’t click on your emails, then you won’t have a chance to reach out to them and increase your traffic. Make sure that your subject lines draw attention without coming across as too salesman-like.
You also want to provide your customers with a CTA when they open the email. This means that you invite your customers to do something that will benefit your business, which is usually a purchase. Keep your CTA simple so that more people will be willing to do it. The more people that follow through on your CTA, the more traffic you will gain for your business.
As you find ways to improve your email marketing strategy, you will naturally see the ROI rise alongside it. ROI reflects the amount of money that you made compared to the money you spent. As it increases, it shows you that you’re doing something that appeals to your customers.
Email marketing stands out as an important channel to communicate with customers. You can encourage them to make purchases and increase your traffic through email newsletters. As your conversions increase, your email ROI will continue to improve as you remind customers about your email newsletter.
Even if your ROI lowers as you make changes, do not panic. This means that you should revert the changes you made since they don’t appeal to your audience. On top of that, you learned what your customers didn’t like, which you can keep in mind so that you don’t make that mistake again.
It comes down to providing the services, products, and information that your customers want. As you keep them in mind and make them happy, you’ll continue to retain customers and grow your ROI. This will lead to more success in your email marketing and more success in your business.