Finding the right e-mail frequency for maximum profit
By Arthur Middleton Hughes
What happens to revenue from sales when you increase the frequency of your promotional e-mails to subscribers? Answer: it usually goes up, which is why some retailers are sending e-mails to their subscribers close to 365 days a year. Don’t believe it? According to this month’s Internet Retailer survey, 55.8% of online retailers conduct between one and three campaigns each month, while 41.8% coordinate between four and 15 campaigns each month. And each month 2.3% of online retailers conduct more than 15 campaigns.
Is it safe to assume that e-mail revenue increases with campaign frequency? If that’s true, why don’t all retailers mail their subscribers every day? There are several reasons, but there is one that is chief among them: while revenue goes up with e-mail frequency, profits may come down. Let’s explore why that is.
On any given day, most individual consumers are either in a buying mood or they are not. If you hit a consumer with the right offer at the right time, she may make an immediate purchase. But if you hit her with an offer at the wrong time, she may just delete your e-mail. If you hit her every single day, she may become overwhelmed and choose to unsubscribe. An acceptable offer becomes an unwelcome nuisance when it shows up in the inbox too often.
This is what many online retailers have discovered. To illustrate this point, let’s review the experiences of a retailer who found out, rather unhappily, that more frequent e-mails do not necessarily produce higher profits. Although this is a real business case, we have modified it to protect the retailer’s identity. We’ll call this retailer Fashion Outlet.
Fashion Outlet was originally sending five e-mails per month to a base of approximately 500,000 subscribers, all of whom provided the retailer with permission to use their e-mail addresses. Fashion Outlet used the approved double-opt-in acquisition system: when it acquired a new subscriber’s e-mail address, the subscriber was sent an e-mail asking her to confirm her willingness to receive Fashion Outlet’s e-mail.
Profits and losses
Fashion Outlet was generating roughly $6.5 million in revenue for the year. After deducting the cost of replacing lost subscribers, the loss of revenue from those subscribers, the cost of goods sold, and the cost of sending e-mails, the retailer achieved a gross profit of about $1.2 million per year or 19.1% of revenue—a great example of how well e-mail marketing can work.
Fashion Outlet acquired replacement subscribers through mass-market advertising, viral marketing and banner ads. Altogether, the retailer’s figures reflected the following:
— Cost of approximately $14 to acquire each new permission-based e-mail address;
— Loss of about 68,400 subscribers in a year, who then needed to be replaced;
— Average subscriber contribution of $13.17 to the retailer’s annual revenue.
That means every time a subscriber was lost from the mailing list, the retailer also lost $13.17 in revenue. Plus, it cost another $14 to recruit a replacement, or a total of nearly $1 million to replace all subscribers lost in a year.
The clever folks in Fashion Outlet’s marketing department reasoned that, if they could get $6.5 million in sales by sending subscribers five e-mails per month, it should be possible to increase that revenue significantly by sending them as many as 15 e-mails per month—one every other day. They were right, as you can see from these results:
— Sales increased by more than $14 million;
— Unique buyers increased from 23,466 to 36,553;
— Orders from unique buyers increased from 12,825 to 44,902.
What they had not counted on, however, was that the increased frequency would also produce some negative results:
— Unsubscribe rate increased from 0.74% to 1.87% per month;
— Undeliverable rate increased from 0.04% to 1.98% per month;
— Annual subscriber loss increased from 13.68% to 46.20%.
On top of all this, to maintain a database of 500,000 subscribers, Fashion Outlet needed to recruit 231,000 new subscribers per year instead of 68,400—once again at a net cost of about $14 per subscriber. Finally, the shift to 15 e-mails per month reduced the retailer’s overall profits by about $887,807, and profit from operations dropped from 19.1% to 2.6%.
Lessons learned
The chart below provides some answers as to why profits did not go up. For example, consumers have a tolerance level for promotional e-mails. One e-mail every other day exceeded the tolerance level of some 150,000 subscribers. Many unsubscribed, and many more became undeliverable through various methods, including putting the retailer on their spam list.
So what can we conclude from this? If you change the frequency of your e-mails, be sure to test the increased frequency on a small part of your total subscriber base first. Had Fashion Outlet done this, the retailer would have learned that unsubscribe and undeliverable rates would go up so much that their gross profits would actually go down.
A possible lesson from this case: give subscribers who want to unsubscribe the option of receiving the e-mails at a lower frequency rate. It is possible that many of the 231,000 who left would have stayed had they been given the option of continuing at the five e-mails per month rate.
Gearing up for an e-mail every other day is challenging work. You have to have something interesting to say 180 times a year. You must increase your creative staff. And when you increase staff, management will likely say, “All right, you have built up your creative staff. Pay for it by sending more e-mails!” Sounds logical at the time; however, we now know that decision would have been dead wrong.
Taking the long view
Most e-mail marketers live from campaign to campaign. They don’t have the luxury of taking the long view, as this business case does. Being shortsighted, however, can be costly. Testing, giving consumers a choice, and making sure with control groups that what you are doing is profitable, are all tactics that should be part of the e-mail marketing tool kit.
It all looks so clear when you look at this chart. Why did Fashion Outlet not realize that they were losing money by mailing too often? Because this chart was not available to them. It is a chart that could only be developed after the year was over and the mistakes had been made.
During the year, Fashion Outlet managed 180 individual campaigns, each different, with products to feature, prices to determine and deadlines to meet. The pressure was on to get the e-mails created and out the door. No one was in a position to take the long view and see where all this was going.
To run a successful e-mail marketing program, you have to look at your long-term success in retaining subscribers rather than your short-term success in making this quarter’s sales goals. E-mail marketing is developing a dialogue between you and your subscribers. Find out what they think about your company and products. Find out what they want to read about, and how frequently they want to hear from you. If you do that, you can avoid falling into the trap that Fashion Outlet fell into.
There are several ways to do this. One is to give everyone who wants to unsubscribe the opportunity to select less-frequent e-mails instead of no e-mails. Or you can ask them if they want e-mails on only certain products—such as shoes, accessories, sport clothing, etc. One retailer who offered a less frequent e-mail opportunity found that it saved more than 25% of those who might have been lost—and those saved went on to buy more products.
Leavers are keepers
Another retailer examined the lifetime value of the unsubscribers versus the lifetime value of those who remained. Amazingly, the subscribers it was losing were more valuable than the ones they were keeping! This type of analysis forces e-mail marketers to work creatively to find ways to retain their subscribers—instead of just sending more e-mails to those who have not yet departed.
Finally, as an e-mail marketer, you should make sure that you are always testing. Before changing the frequency for everyone, change it for 20% of your file. See what happens to the deliverability rate and the number of unsubscribes. If Fashion Outlet had done this, it might have saved itself a lot of grief. The other part of testing is having a monthly review where you get your staff together to answer the question: “What changes in our e-mail program should we make based on what we have learned from the tests last month?” Many e-mail marketers do run tests, but without the subsequent review sessions.
E-mail marketing is hard work. Few people have the time and foresight to look ahead, to do tests, and to develop charts based on a year’s data. But those who are successful at e-mail marketing will be those who have the drive and persistence to do just that.
Arthur Middleton Hughes is senior strategist at e-Dialog, an e-mail marketing services company. He is founder of the Database Marketing Institute. Hughes can be reached at ahughes@e-dialog.com.
