How to Maximize the Return on Your Email Marketing Dollars
Depending on which study you read, it can take six to seven interactions to turn a prospective customer into a first-time customer. Many of the business owners who come to Constant Contact seeking higher returns on their marketing dollars quickly realize that higher returns happen when they stop focusing so heavily on acquiring new customers and spend more time communicating effectively after the initial touch.
IDENTIFYING YOUR CUSTOMER TOUCH POINTS
Figuring out where your customers come from helps you determine where to invest your money and where to cut unprofitable spending. In case you think you know exactly where your customers come from, consider the following example:
Sally, a small business owner with a brick-and-mortar jewelry store, is contemplating stopping sending emails because most of her new customers were coming from the online ads she places on Google when people search for “jewelry store in Omaha, NE.”
When Sally asks her new customers how they found out about her, they say they searched online and found her web site. However, if she had conducted further investigation, she would have found that her new customers actually come from her emails and several other touch points.
For example, she asks people to join her email list at the networking events she attends each week. These prospective customers are receiving her emails, but they aren’t always ready to buy jewelry immediately when the emails go out.
When Sally’s customers are ready to buy, they remember the networking event, the emails, and the town her store is in, but they don’t remember the name of her store or exactly where it’s located. So, they search for “jewelry store in Omaha, NE” to find out where the store is and when she is open.
Then they drive to Sally’s store, which happens to be across the street from another jewelry store. Since the sign over her store looks the same as the logo on her web site, Sally’s customers are able to track her down easily. However, if Sally were to ask customers how they found her, she would be just as likely to hear from a web search, yellow pages, or the sign on the door as she would be to hear the real source—her networking efforts. This simple example highlights the challenges of figuring out which of your marketing efforts drives the greatest return for your business. That said, the more you know about your sources, the more effective you can be in maximizing your spend.
The combination of your marketing media is known as the marketing mix, and it’s important to understand the role each touch point plays in driving business your way.
When I work with business owners on maximizing their email marketing spend, I often start by assessing their overall marketing strategy. I start here because email marketing is a critical component of a comprehensive marketing strategy and it needs to be interwoven with every other marketing program being deployed. I typically start the marketing strategy discussion with a conversation on the market opportunity, during which I ask three questions:
1. Define your target market. What are the characteristics of your most likely customers (age, gender, location, interests, business types, etc.)?
2. How do they congregate (where, with whom, when, etc.)?
3. How do you plan to reach them (directly, indirectly, word of mouth, etc.)?
This is followed by a discussion of where the business owners believe their revenue will come from over the next 24 months. I ask them to answer this question by allocating a percentage of the total future revenue into one of three buckets:
1. The Unaware. people or businesses that have no idea who you are today
2. The Aware. people or businesses that know of you today but are not a customer
3. The Active. people or businesses that have already purchased from you
Simply put, the ultimate goal of your marketing strategy is to make the unaware aware, drive the aware to become active, and get the active to return on a regular basis. To maximize your marketing mix, you simply need to determine the most cost-effective way to move people from one stage to the next and then determine how much of your budgeted time and dollars you want to allocate to each step.
Figure 3.1 Constant Contact Cycle with Marketing Mix
I often use Figure 3.1 to demonstrate the correlation between the Constant Contact Cycle and the components of a well defined marketing strategy, and the role email marketing plays to point out how they are interdependent and aligned.
The inner ring (1) of the diagram is the process through which relationships are formed, starting with acquisition and leading ultimately to trust. At each stage of the cycle it is important to understand that different marketing strategies are needed in order to move a customer from one stage to the next. The second ring (2) highlights these strategies and they are more fully defined below. The final ring (3) represents the role of email marketing and the typical path that it takes as it is integrated into the overall marketing mix. You will note that it starts at point 3 (Grow Stage), with email being sent to engage existing customers, and then migrates back towards acquire as it is deployed to help in converting prospects to customers and ultimately into an acquisition vehicle as recipients forward your communications on to others.
A well designed email marketing strategy acts as grease that speeds up the customer relationship cycle (Ring 1). In looking at the chart above, it’s interesting to note that businesses typically think marketing focuses solely on moving the aware to action (Acquisition Marketing). As we will explore in subsequent chapters, a well structured email marketing strategy typically starts with getting repeat business from those who have already purchased from you (Action Marketing), but then naturally migrates back around to enhance Acquisition Marketing efforts and ultimately drive awareness.
Before you dive into the process of determining your marketing allocation, it’s worthwhile to evaluate the characteristics of the marketing mix available to you at each stage in the process. This will help you balance your investments and maximize the velocity at which the cycle spins.
Stage One: Awareness Marketing: The Process of Making People Aware that You Exist
The key to Awareness Marketing success is understanding your target market. The narrower you can define your market, the easier it will be to determine the most suitable marketing medium to use. For example, for a plumber this might be the yellow pages, for a coffee shop it might be as simple as having a great looking sign and being in the right location, for a non-profit it might be getting coverage by the local press. Awareness Marketing programs tend to be the most expensive type of marketing you will do for your business. This is due, in part, to the fact that it is often difficult to track the return on your marketing investment. At Constant Contact, we consider our national radio campaign to be an Awareness Marketing campaign. Email marketing is not a marketing medium that is typically thought about as something used to create awareness. However, if you do email marketing well, awareness can be generated through word-of-mouth referrals.
Stage Two: Acquisition Marketing: The Process of Driving the Aware to Take Action
This form of marketing is typically easier to track than awareness marketing. At Constant Contact, we consider the marketing efforts that drive traffic to our web site to be Acquisition Marketing and we track each source based on volume, quality, and longevity. This enables us to determine the best places for us to invest to drive new business.
The key element associated with this type of marketing is that there is a clear direction you want the prospective customer to take. Whether it is to your web site, storefront, or an event, the path is clear and traceable. Email marketing plays an integral role in acquisition marketing because once you’ve established a connection, it is the most cost effective way for you to communicate and nurture the connection into a first time customer.
Stage Three: Action Marketing: The Process of Getting the Active to Return on a Regular Basis
Once you have invested in acquiring a customer, you have done all the heavy lifting from an investment standpoint. Now it’s up to you to continue to remind your customers of the value you provide so they continue to return to you when they need what you provide. This is truly the sweet spot of email marketing. By regularly delivering professional communications that contain information the recipient finds valuable, you will maximize the revenue potential of your customers, maximize the return on investment of all your other marketing investments, and likely reap the added benefit of word-of-mouth marketing as your customers forward your message on to their friends and family.
Now it’s time to take out a piece of paper and write down your marketing strategy. Be sure to list every place you interact with your customers and prospective customers. This is something you will want to update regularly. It will give you a great starting point for determining how to incorporate email marketing into your overall mix.
FIGURING OUT HOW MUCH TO INVEST
Spending money on marketing is going to feel a lot more like an expense than an investment if you rely too heavily on using paid mass messages to turn total strangers into customers. In fact, the economics of a successful marketing mix are derived from your ability to invest in the most effective messaging after one of your first touch points grabs the attention of a total stranger. Compare the following two scenarios with the same starting economics, as shown in Table 3.1.
Let’s say you decide to spend $500 on a paid mass advertisement that results in ten people walking into your store. Out of ten people:
• Two have an immediate need for what you sell and will make a $100 purchase
• Six are potential future buyers
• Two aren’t interested in your business at all.
Table 3.1 Two Marketing Scenarios
Scenario 1: You sell your product to the two with an immediate need and make $200. Since you spent $500 on the ad, the net cost to you was $300 to generate those sales. If you want to get more customers in the store, you could run another $500 ad and lose another $300, or you can do what I recommend by following Scenario 2.
Scenario 2: You sell your product to the two with an immediate need and you make $200. You also make a good enough impression on four of the other six that they are willing to share their email addresses. If you also get contact information from the two customers, you now have contact information for six new prospects.
At this point, you have experienced the same economics as Scenario 1, but you no longer have to spend $500 to get more customers in the store because you can send your email newsletter and email promotions as a follow up to the people who shared their email addresses. Of course, this will cost you much less. (As an example, Constant Contact allows you to send as many emails as you want, up to 500 people, for $15.00 per month.)
If your follow-up emails result in one of the two customers coming back to make a purchase and three of the six interested prospects coming back to make a purchase, the four new purchases will result in $400 in added sales, and you will now have a profit of $100 instead of a $300 loss, minus the low costs of your email program.
Having a communications strategy can not only help you generate additional revenue from your marketing efforts, it can actually change the economics so that investments that make no sense alone can actually become profitable when looked at collectively.
Figuring out how much to invest isn’t about assigning a percentage of your budget to advertising, it’s about making investments in messages that work together to live beyond the first touch. In the next section I’ll explain where to invest.
CUTTING THE FAT AND MAXIMIZING YOUR INVESTMENTS
Now it’s time for a little math. You need to find out the cost of acquisition (COA) for each customer source so you can determine whether you need to cut a cost, apply a lower cost messaging strategy to an upfront cost, or invest more in the same cost.
The cost of acquisition is a fancy way of asking, “How much do I have to invest in a given source for it to generate a new customer?” Here is the formula:
Take out a piece of paper and calculate the COA for each of your customer touch points. For now, leave out email marketing. Once you have a COA for each source, list them on a piece of paper from highest to lowest. Table 3.2 shows an example.
This summary highlights the magnitude and productivity of each of your marketing investments. Whether you have additional money to spend on marketing your business or are looking to re-balance your current spending to maximize your return, this approach provides you with the information you need to make the right decisions.
However, before you start slashing costs or investing more, it is equally important to do some re-weighting of your results based on the quality and quantity of the leads generated from each source.
Table 3.2 Example COA Without Email Marketing
Table 3.3 Example COA with Email Marketing Lead Nurture
In the example above, it would be easy to make the case to eliminate the newspaper ad since it is clearly the most expensive source of customers. However, if your newspaper ad runs in a highly targeted publication and you receive 500 quality leads from that ad per year, you might be able to justify the expense if you find a way to convert those leads at a lower cost using email marketing. An example of this is shown in Table 3.3.
Note that acquiring 275 additional customers for only $1.80 each brings the total cost of acquisition down by 40 percent from $100 each to $60 each. In this case, it might make more sense to cut your direct mail and invest that money in more newspaper or search ads.
The quality of your leads and the contact information you receive has a direct impact on your ability to convert those customers. Poor quality leads could increase your costs or eliminate your ability to convert anyone to a customer.
For example, if you have a shoe store and the search engine ad in the table above reflects visitors who searched for “hiking boots,” you shouldn’t count those visitors as quality leads unless you are sure they were potential customers trying to buy hiking boots instead of high school students writing reports on camping gear.
Usually you need to collect some identifying information to count someone as a lead, and the quality of that information impacts your ability to follow up in a meaningful way.
Figure 3.2 COA and Break-Even Analysis
All these examples point to one thing: If you can follow up multiple times at a low cost, you’ll gain more customers and spend less money in the long run. Figure 3.2 shows a form that you can use to figure out your own Cost of Acquisition and the number of purchases needed to break even on a new customer. If you would like to download this table along with the rest of Constant Contact’s Email Marketing Workbook visit www.constantcontact.com/workbook.
Once you’ve identified places to cut or invest, spend some time thinking about non-monetary ways you can impact the number of leads you generate from each source. For example, you can stimulate word-of-mouth and referrals by asking for them instead of waiting for them.
From my experience at Constant Contact, I can say that trying to stimulate word-of-mouth is difficult to accomplish by investing money in gifts and expensive programs. Customers who refer you to others are putting their reputation on the line for your business, and that is something, for most people, that cannot be bought. However, it can be encouraged by simply telling people at the bottom of your email that you appreciate it when people refer your business to others and inviting them to forward your email to one or two other people who might find the content interesting.
It’s also a good idea to use some of the money you cut from your marketing budget to invest in experimentation. Once you know what you are currently paying to attract new customers, you are well positioned to not only optimize the return you generate from these sources, but to negotiate with new sources.
At Constant Contact our marketing mantra is “test, then invest.” We are open to trying any marketing program that reliably reaches our customer demographic and is something that we can measure. However, we first test it on a small scale in order to determine that it generates new customers within our cost tolerances. If it performs, then we scale it accordingly.
In all cases, make sure your communications provide all interested prospective customers with a way to continue the dialogue in a way that provides you with a low-cost connection.
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