Introduction
Even though it's common knowledge that email marketing has the highest ROI of any marketing channel ($44 for every $1 spent), it continues to be one of the most underfunded. This fact becomes even more unbelievable when you consider all of the other benefits email marketing provides:
- Email is a great channel for lead nurturing.
- Email enables you to collect info from your audience you can use to personalize and optimize all of your marketing campaigns.
- Email enables you to amplify all of your marketing content and promotions and is one of the most reliable sources of web traffic.
Research from the 2017 Email Marketing Census Report by Econsultancy shows that the more you invest in email marketing, the higher your returns are likely to be.
| Year | Avg. Proportion of total marketing budget email accounts for | Avg. proportion of sales attributed to the email marketing channel |
|---|---|---|
| 2012 | 14% | 18% |
| 2013 | 14% | 19% |
| 2014 | 16% | 22% |
| 2015 | 13% | 20% |
| 2016 | 15% | 23% |
| 2017 | 15% | 22% |
Yet since 2014, the average amount invested in email marketing has only increased 1% point (15% to 16%).
While there are probably many reasons for this, most of the clients we work with fail to invest properly in email marketing for 1-3 reasons:
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Inability To Properly Measure & Prove Email Marketing ROI
In order to convince CMOs to properly invest in email, marketers must demonstrate its impact on sales. Of course, the strongest and most direct indicators of the effectiveness of email marketing are open rates, click through rates, and conversion rates. But as the DMA Email Tracking Report shows, email marketing can often indirectly contribute to sales. Many of the consumers they interviewed said that emails would prompt them to visit a company's website (27%), their physical store (12%), their social media page (9%), or call the organization (5%). Measuring and demonstrating these direct and indirect contributions remains a challenge for most marketers.
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Difficulty Getting Buy-In From Superiors
Because it's difficult to measure the full impact of email marketing, it can be difficult to convince decision-makers to invest adequately in email. Especially for companies with tight marketing budgets, CMOs can be hesitant to invest in unproven channels or channels where ROI is not effectively demonstrated. They'll opt instead to pour more money into familiar channels. This becomes a self-sustaining problem. A lack of investment prevents email marketers from implementing the kinds of email marketing tactics that will yield the best results (segmentation, automation, personalization, etc.). In turn, the lack of results they get leads to a lack of investment.
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Not Sure How To Properly Calculate An Email Marketing Budget
But even for companies and marketers who understand the value of email marketing, calculating a budget can be difficult. What percentage of your marketing budget should go to email? How much should you invest in the beginning? How do you scale up your investment and when? These are hard questions to answer and there's not much useful guidance out there. Which is why we decided to create this article. Creating a proper email marketing budget is critical to reaping the value from this high-ROI channel and growing your business.
So we're going to share the process we use to help our client's put together the perfect email marketing budget for their business, as well as cover important topics such as:- Why most of the commonly shared knowledge about email marketing budgets is flawed.
- How much money you should invest in email marketing in the beginning and how to invest it.
- How to calculate the perfect email marketing budget and scale up your investment over time.
- How to measure email marketing attribution to get buy-in from your team and learn how to best invest your email marketing spend.
If you want to learn more about building an email marketing budget and operation that's perfect for your business, contact us now!
What Most Get Wrong About
Email Marketing Budgets
When trying to determine how much to invest in email marketing, many marketers turn to Google to search for the prevailing wisdom.Instead of getting any useful guidance, what they find is a bunch of articles repeating the same flawed, overly-simplistic statistics, assumptions and suggestions.
While researching this article, I found 3 assumptions repeated over and over again:
Assumption 1:The average mid-size business invests $9 - $1000 per month in email marketing.
Many articles tell you that the average mid-size business spends $9-$1,000 per month on email marketing, and suggest that maybe you should start in this same range.
There are several problems with this suggestion, the first being that I have no idea where it came from.
I can't find any survey or industry report to back it up. And every article that makes this claim just links back to this WebFX article, which seems to be where it originated.
Which is why I don't think this is a reliable figure backed by industry analysis or research, but rather the average amount WebFX's midsize clients spend on their services (of course, this is just my assumption). Beyond that, this figure isn't helpful at all.
There's a large disparity between $9 and $1000. Should you just pick a random number between them? And what results can you expect from this investment range?
There's also no indication of what kinds of results these companies are getting. I highly doubt that anyone who's spending just $9 per month on email marketing is seeing substantial returns.
Assumption 2: Your email marketing budget will be determined by your specific circumstances.
Again and again, I've seen articles make this obvious statement.
I'm willing to bet that you could've figured this out on your own without reading an entire article. So we'll just take this as a given.
And while many of these articles list out some circumstances that can affect your budget - i.e. company size, business type, annual revenue, type of product or business, etc. - they give you no guidance at all about how to use those circumstances to create an email marketing budget.
Assumption 3: You should invest 16% of your total marketing budget into email marketing.
Many articles on the subject will suggest that you invest 16% of your total marketing budget into email marketing.
As far as overly simplistic suggestions go, this one isn't as bad because it's more closely connected to ROI.
The figure comes from the Email Marketing Industry Census done by Econsultancy, which found that:
A. The average marketer they interviewed received an 80% ROI from email marketing
B. Of those who got an 80% ROI from email, the average investment in email marketing was 16% of their total marketing budget.
Ideally, you SHOULD aim to ultimately invest 16% or more of your total marketing budget into email marketing.
But a hard and flat figure like this isn't helpful for marketers trying to determine how much their company should invest in email marketing because:
- If you don't already have an email marketing program that's getting results, it'll be hard to convince decision-makers at your company to redirect such a large percentage of marketing spend into email.
- It assumes that merely by investing 16% into email marketing, you'll automatically receive 80% ROI. Which isn't necessarily true because how you invest your email marketing budget is just as important as how much you invest in it.
- As we covered earlier, your specific circumstances will largely determine how much you can budget for email marketing. Not everyone can afford to invest 16% of total marketing spend.
Do you want or need to increase your email marketing budget but don't know how to ask the C-Suite for more money, this video just might help.
“ What Chris has to
say about Email Marketing Budget ”
The Data-Based Method For Building
An Email Marketing Budget
Most of our clients have already determined how much they're willing to invest in email marketing. But for those that come to us for budget guidance, we employ a better system for building a budget that provides:
- A data-based method for calculating an appropriate email budget that's tied to their company's revenue goals.
- Guidance on how to invest their budget in order to get a good ROI.
- Guidance on how to convince decision-makers at their organization to invest appropriately in email marketing and scale that investment over time.
The process can be broken up into four phases as follows:
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Phase 1:
Find Your Monthly Revenue TargetsIn this phase, you'll set a goal for how much revenue you want to generate from email each month. Using that goal, you'll determine how many leads you need to generate from email each month in order to reach it. In Phase 4, you'll use these figures to reverse-engineer the ideal email marketing budget.
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Phase 2:
Start With A Minimum Viable BudgetIt doesn't make sense to invest heavily in email marketing (or any other channel) before you know how to invest that money. In Phase 2, you'll start with what we call a Minimum Viable Budget - the lowest amount of money you need to invest in email in order to test out strategies and identify what works.
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Phase 3:
Invest Your Minimum Viable Budget And Track Your ResultsIn this phase, we'll discuss how to invest your MVB. And since getting company buy-in on email marketing is closely tied to how well you demonstrate the impact of your email efforts on the bottom line, we'll also discuss how to track your results and do proper marketing attribution.
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Phase 4:
Find Your Ideal Budget & Scale Up Your InvestmentIn this phase, you'll use the figures from Phase 1 and the results you got in Phase 3 to calculate the ideal email marketing budget so you can begin to scale up your investment. To make the process more tangible and easier to understand, we'll apply it to a fictional ecommerce mattress company.
Let's begin..
Phase 1:
Find Your Monthly Revenue Targets
The whole point of investing in email or any other channel is to increase revenue.
So rather than guessing at how much to invest or relying on arbitrary statistics, you should identify a monthly revenue goal first and use it to reverse-engineer your email marketing budget.
Step 1: Identify Your Monthly Email Revenue Goal
Your Monthly Email Revenue Goal (MERG) is the amount of revenue you'd like to generate each month from email marketing. While many companies may not have a specific target for how much revenue they want from email marketing, most already have an overall monthly revenue goal for their business.
So an easy way to identify your monthly email revenue goal is by asking:
- How much revenue is my business currently generating each month (Monthly Revenue)?
- How much revenue would I like to generate each month by the end of this year (Monthly Revenue Goal)?
Subtract your MR from your MRG to get your MERG.Let's assume that our fictional ecommerce company has a MR of $50,000 and a MRG of $80,000.
MR = Monthly Revenue
MRG = Monthly Revenue Goal
ERG = Eamil Revenue Goal
MR: $50,000
MRG: $80,000
ERG (MRG - MR): $30,000
Step 2: Calculate The # Of Sales Needed To Hit Your MRG
To calculate the number of sales you'll need to hit your MRG, you first need to identify your Average Sale Value (ASV). How much does the average customer spend on your product or service? Let's assume the ASV for our fictional ecommerce company is $800. Next, divide your MERG by your ASV to determine how many sales you need to get each month to reach your MRG.
For our client, that's:
MERG = Monthly Email Revenue Goal
ASV = Average Sale Value
MRG = Monthly Revenue Goal
MERG ÷ ASV =
Monthly Sales Target
$30,000 ÷ $800 =
~38 Monthly Sales
Our client needs to generate ~38 sales each month from email to hit their MRG.
Step 3: Calculate How Many Leads You Need To Generate From Email
Usually, sales generated from email follow 1 of 2 paths:
A. You send people to a landing page where they purchase your product (usually for ecommerce businesses). B. You send people to a landing page where they sign up for a consultation call or a product demo (usually for service-based or SaaS businesses).
In both cases, sales aren't directly generated from emails, but rather from landing pages or salespeople. Which is why we use leads to reverse-engineer email budgets rather than conversions. If you're not hitting your conversion targets, that could mean there's a problem with your email campaigns. But it could also indicate a problem with your landing pages or sales process. By focusing on leads generated from email rather than sales, you can not only generate a more accurate budget but also determine whether improvements need to be made in your email strategy or your landing pages/sales strategy.
So we need to figure out how many email-driven leads we need to generate in order to reach you MERG. Start by figuring out the conversion rate of your landing page. What percentage of landing page visitors convert into customers? Let's assume our ecommerce company's landing page converts 8% of visitors. If they're converting 8% of their traffic, how much traffic will we need to send to the landing page to reach 38 sales per month?
MERG = Monthly Email Revenue Goal
38 ÷ 8% =
475
We can estimate that by generating 475 landing page visitors at an 8% close rate, the company will reach their monthly sales target of 38 customers.
So to recap, our clients metrics and goals are:
- Monthly Revenue: $50,000
- Monthly Revenue Goal: $80,000
- Email Revenue Goal: $30,000
- Average Sale Value: $800
- Monthly Sales Target: ~38
- Landing Page Traffic Target: 475
Now we have clarity on our email marketing goals. Later, we'll use these figures to determine the ideal email marketing budget.
Note: Service-based businesses and SaaS businesses can tweak and use the same formula. Simply replace "landing page conversions" with "consultation conversions" or "demo conversions."
Phase 2:
Start With A Minimum Viable Budget
If you're just starting out with email marketing or have an underdeveloped operation, you probably won't convince your marketing team to invest heavily into email just yet (certainly not 16% of your total marketing budget).
You have to start with a more realistic budget and use that budget to get results and demonstrate that email is a viable channel for your organization. You can use those results to slowly scale up your email marketing spend until you reach your ideal budget target.
If your starting budget is too small, you won't be able to invest in the email marketing strategies necessary to get results. And since you won't be getting results, your company will be hesitant to invest more resources and grow email into a viable marketing channel.So you'll need to start with what we call a Minimum Viable Budget (MVB)
The MVB is the least amount of money you'll need to launch an effective email marketing program.
- Give you enough resources to test different email marketing strategies so you can identify which tactics are most effective and invest more in them later.
- Generate early wins so you can demonstrate the value of email marketing.
For most of our beginner clients, we suggest they start by investing at least $1,500 - $2,000 per month in email marketing. That's big enough to launch an effective email marketing operation and small enough that it shouldn't be difficult to get your team to commit to it.
Phase 3:
Invest Your MVB & Track The Results
Getting your company to invest adequately in email hinges primarily on accomplishing 2 things:
- Identifying effective email marketing tactics and generating revenue.
- Demonstrating the full value of email marketing.
We can't tell you what strategies will work best for your company. And a full explanation of how to figure it out would require an article of its own.
To learn how to develop a strategy that works, check out our Ultimate Email Marketing Strategy Guide. For now, let's discuss some critical components of properly tracking and attributing the value of your email marketing efforts.
Demonstrating The Full Value Of Email Marketing
To get your company to fully invest in email marketing, you must demonstrate its full value in a way that convinces them that more investment will yield more results.
To do so, you must track 2 groups of metrics:
A- Effectiveness Metrics
Effectiveness metrics are metrics tied to the effectiveness of your email marketing campaigns and operations.
Such metrics include:
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Open Rates: How many of your emails are getting opened? How is your open rate increasing over time? This metric demonstrates that your emails are actually being seen by customers and have the potential to influence purchase decisions.
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CTR: How many people are clicking through to visit your website or landing page? This metric demonstrates that your emails are influencing recipients to take action.
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Conversions: How many leads or customers are you getting from email marketing? This metric will prove that email marketing is a viable source of leads and customers.
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Conversion Rate: What percentage of email-driven traffic is converting to a sale? This metric can be used to compare email to other marketing channels and demonstrate its superiority.
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Email-Driven Revenue: How much revenue can be directly attributed to email? How is this number changing over time? This metric will demonstrate the value of email to decision-makers more than any other.
These metrics are important for demonstrating that your email marketing efforts are working, improving, and having a positive impact on the company's bottom line.
They'll help you convince decision-makers at your organization that:
- email marketing is a viable channel
- you're implementing it effectively
- investing more into email will yield greater results.
B- Indirect Impact Metrics
Indirect impact metrics are metrics that show how email marketing is indirectly contributing to sales and improving the effectiveness of other marketing tactics and channels.
Such metrics include:
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Email-Driven Website Traffic: How many website visitors come from your email campaigns? Most businesses track the conversion rate of their website traffic. Measuring how much site traffic is coming from email marketing can help you make the case that email is responsible for a portion of those conversions.
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Email-Driven Blog Traffic: How many blog readers come from email? This metric can help you demonstrate that your email marketing efforts are having a positive impact on the company's content marketing efforts.
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Multi-Touch Attribution: Most marketers only measure Last-Touch Attribution - the people who converted directly from an email campaign. But if someone clicks through from an email to a blog article, then converts into a lead or customer, the email still played a role in that conversion. You should track the role of email marketing in the full customer journey.
It stands to reason that your company should devote a percentage of your marketing budget to email that correlates to the impact email marketing has on the results of your marketing efforts. The greater the impact email has, the more money should be devoted to it. Indirect Impact Metrics will help you quantify that impact and make a case for greater investment in email marketing.
Phase 4:
Find Your Investment Target & Scale Up Your Email Marketing Budget Until You Hit Your Monthly Revenue Goal
After 6-12 months of implementing, testing, and measuring email marketing strategies, you should have:
- Generated some consistent leads and sales from email marketing.
- Identified your most effective email campaigns and tactics.
Once you know how well your email efforts are performing at your MVB, you can estimate how much more you'll need to invest to reach your Monthly Revenue Goal.
Effectiveness Metrics and Indirect Impact metrics are useful for demonstrating the value of email. But calculating the ideal email marketing budget only requires the lead-based metrics we laid out in Phase One. For now, we just need a simple measurement of the monthly ROI of your email marketing efforts to estimate a budget that will achieve your MRG. To calculate the ideal budget, we need to figure out your cost per lead by dividing your current budget (the MVB) by the average number of email-driven leads.
MVB = Minimum Viable Budget
EDL = Email-driven Leads
CPL = Cost Per Lead
MVB ÷ EDL =
CPL
Let's assume that after 6 months of email marketing at an MVB of $1,500, the ecommerce company is sending 160 leads to their landing page each month.
MVB = Minimum Viable Budget
$1,500 ÷ 160 =
~$9.38
Then, multiply your cost per lead by your monthly lead target.
CPL = Cost Per Lead
MLT = Monthly Lead Targets
CPL x MLT =
Ideal Budget
For the ecommerce company, each email-driven lead (landing page visit) is costing them $9.38. Their goal is to send ~475 leads to their landing page each month.
So their ideal budget is:
EDL = Email-driven Leads
$9.38 x 475 =
~$4,450
Other Considerations
Before you rush to your CMO to ask for the ideal budget you just calculated, there are some other considerations to take into account.
First, you shouldn't go from your MVB straight to your ideal marketing budget. Instead, you should ramp up over time to ensure that your ability to generate leads stays consistent.
If not, you might run into an issue where you have to explain why you're not producing the results you promised your ideal budget would. Second, you should measure how many email-driven leads are converting to sales.If email-driven leads are converting at a lower rate than the landing page/sales team was before, then your email marketing tactics may not be producing qualified leads.Or it could be the result of a mismatch between your email campaigns and your landing pages. If your email campaign speaks to one market segment but your landing page to another, then that conflict could prevent some leads from converting.
Take the ecommerce mattress company for example. Let's assume that they have two market segments - men and women. If they run an email marketing campaign to their male market segment that speaks to how their mattress can solve the goals and pain points of men, but then send them to a landing page that primarily focuses on the goals and pain points of their female segment, the landing page will be less convincing and will probably convert fewer males.
You can address these problems in 2 ways:
- Dig into your email marketing data to figure out which campaigns and tactics are producing leads that convert most frequently, figure out why, and invest more in those methods.
- Set up separate landing pages for each campaign/market segments.
Go Build A Better Budget!
If you've ever read some of the other articles out there on building email marketing budgets, you probably left more confused than when you started.
Most treat budgeting like a guessing game - pick a number, see how it plays out, and go from there.
And you have a map for reaching that budget target and convincing decision-makers at your organization to invest seriously into email. All that's left is the footwork. So start right now by identifying your monthly revenue targets. Then follow the rest of the game plan until you've built a serious email marketing budget and program.
If you want to learn more about building an email marketing budget and operation that's perfect for your business, contact us now!
Get in touch to start a conversation.
