The theme of the day was data with some interesting case studies from Scholastic and MBNA on how they are leveraging data from across their business to inform and drive their email marketing programs. While these use cases were both fascinating, they were also predicated on the notion that they had the email address to begin with; a topic that was covered in a discussion chaired by Kath Pay from Holistic Email with Lia De Jong of Photobox, Rob Coyne from LiveIntent and me as panellists.
The panel started with the seemingly simple question of finding the balance between quantity versus quality. In my opinion, however, there is no balance as these are two diametrically opposed strategies. Quantity can work for many business models; especially those where the product has a low margin and high repeat purchase rate or has a high margin with a low repeat purchase rate. I joked at the time that it is clearly a proven strategy as spammers are very successful with it. Now I am not suggesting that anybody going after quantity is a spammer but let’s look a little more closely at the spammer business model to see how it works.
Let’s say I can “acquire” one million email addresses at a cost of £100. Let’s also assume that I have a real product to sell which has a margin of £25. I need to make 5 sales to have a positive return on investment (ROI). In other words, I need a conversion rate of 0.0005% to get an ROI of 25%. Most marketers would bite your arm off for that. The key to this strategy is a low cost of acquisition (COA). In this example our COA was 10p per thousand against an average email value of 12.5p per thousand. The spammer knows they are going to get tremendous amounts of wastage, but they do not care because that is already built into the COA. The other thing to note about this example is that the list was only used once but this would be silly. Email marketing is best built on multiple touches over time so the conversion rate of any one campaign could be even lower and you would still make money over the lifetime of the address.
A quality data strategy on the other hand is just the opposite and therefore requires a high margin product or those with a lower margin but a high repeat purchase rate. The maths however, are the same. Look at the value of the email address over its lifetime or your standard business cycle by taking the total revenue generated by your list divided by your mailable population. This value of an email address will give you the maximum you should be willing to pay to acquire an email address and still expect to make money on it.
Up to now I have been looking at a very simple model which includes only a single source for email acquisition. Regardless of whether you are using a quantity or quality strategy this is too simple for the real world where even if we only source email addresses internally, we are going to have many sources such as the homepage, pop-overs, web forms, ecommerce checkout, account registration, off line POS, the contact centre; the list is endless. Add to that all of the external sources, Facebook, Twitter, ad serving and it gets quite complicated. Each source will have both their own cost of acquisition and their own conversion rate. It is important that you are able to track these separately to ensure that all sources are performing well; that the average value of the email addresses exceeds the average cost of acquisition. Further to that you can then start to optimise your acquisition channel mix by comparing the marginal value driven by each.
Once you have mastered the basics you can take this to the next level by looking at cost per conversion which factors in not only the cost of acquisition above but also the average number of emails needed to get the sale by acquisition source. This all will be covered in much greater detail in an upcoming white paper and keep an eye out for future posts where we will start to cover the acquisition tactics that work across the wide array of channels.