Balancing Act: Efficiency and Revenue
Posted by Bill Leming on April 23rd, 2009
From any number of articles I’ve read and from numerous conversations with colleagues, it seems a generally accepted fact that total email spend in 2009 will outpace that of 2008 by anywhere from 15% to 20%. Obviously, like most generalities, much will depend on the specifics like to whom you’re talking, the industry in which they operate, the impact of the recession, the markets served, etc. If you accept that percentage increase as fact or close to it, there is the even more-widely held tenet that email marketing has far and away the highest ROI of any measurable media at our disposal today.
So we’re spending more on email because it gives us the highest return and, conversely, spending less on the more costly media that deliver lower ROIs. That seems to make sense. Stated a bit differently, we’re allocating more budget dollars to that marketing channel which is most efficient. That has me scratching my head. Specifically, it’s the “more” to “most” which is troublesome. What if we were spending most of the marketing budget on those initiatives that were most efficient (had the highest ROI)? That makes far more sense to me.
The answer lies in the fact that “efficiency’ is not the only metric that marketing must address. The other and equally important is the issue of “volume” in terms of units sold, revenues or profits generated, incremental profits produced, etc. Email may be enormously efficient but it’s nowhere near the revenue driver of say, internet marketing excluding email. So what’s the answer?
I think the answer is to look at each marketing channel not just as a single entity with one overall average ROI and one corresponding revenue generated figure, but rather as a composition of its various programs or campaign elements. “Welcome” and “Thank You” email messages perform differently than “25% Discount This Friday” offers so why don’t we look at each effort individually in terms of its efficiency first and its revenue volume second? That way we can actually see the performance (efficiency and volume) of each individual email campaign in relation to every other email campaign. Perhaps more importantly we can then layer in all other, non-email initiatives including each and every DM campaign, each and every telemarketing effort, each and ever non-email internet campaign effort, etc. rank ordered on whatever universal efficiency metric (ROI, CPM, etc.) has been established.
Doing so enables you to allocate your dollars where they will do the most good from an efficiency as well as a revenue or profit standpoint. Doing so also strongly suggests where we should make budget cuts if we’re asked to and enables us to immediately report what the specific impact on overall sales volume will be as a result. It gets us away from thinking that performance averages are acceptable. Clearly they are not.
