Determining the ROI on a newsletter program is not as straightforward as it is for a standard direct mail or direct email campaign. For most direct marketing campaigns, determining the ROI requires simply calculating the direct sales and costs for the campaign. With newsletters, direct sales are usually not the primary focus of the campaign, so the standard calculation neglects the principal objectives of the program.
Newsletters expand customer relationships, establish brand association, build customer profiles, and maximize customer retention. Each of these benefits drives long-term sales for a company. Therefore, a thorough ROI calculation compares the long-term revenue and costs for recipients of a newsletter to the long-term revenue and costs of non-recipients.
In order to calculate the long-term customer value of individuals, you need to be able to track and record each individual's purchases. This may only be possible online and with offline loyalty programs.
HOW TO REALLY CALCULATE ROI
It is necessary to analyze 5 pieces of data to accurately determine the ROI for a newsletter program. The analyses should be for a pre-determined time period that is sufficient to capture the long-term benefits of a newsletter program. The required time period will depend on the sales cycle of the product in question. For a frequently purchased product or service such as CDs or books, a 6-month period should be adequate.
Here are the 5 required pieces of information you will need to make the calculation:
A. The number of newsletter recipients.
B. The number of newsletter non-recipients.
C. The revenue generated from newsletter recipients during the time period.
D. The revenue generated from non-recipients during the time period.
E. The cost of the newsletters for the time period.
The calculation has 5 steps:
1. Determine the average revenue per recipient by dividing C by A.
2. Determine the average revenue per non-recipient by dividing D by B.
3. Determine the cost of the newsletters per recipient by dividing E by A.
4. Determine the difference between recipients and non-recipients by subtracting the amount obtained in step 2 from the amount obtained in step 1. (C/A)-(D/B)
5. The ROI is obtained by dividing the amount obtained in step 4 by the amount obtained in step 3. ((C/A)-(D/B)-(E/A))/(E/A)
Let's walk through an example.
20K of your customers receive a newsletter (A) for 6 months and 50K do not (B). The revenue generated from newsletter recipients is $2.1M(C) and from non-recipients it is $5M(D). The cost of the program is $40K (E). The average revenue per recipient is $105 ($2.1M/20,000). The average revenue per non-recipient is $100 ($5M/50,000), which makes the difference $5. The cost of the newsletter program per individual is $2 ($40K/20K). The ROI is 250% ($5/$2).