E-mail is replacing “snail mail” in almost every facet of our lives. Instead of buying and mailing a greeting card, we are sending free e-mail cards from online vendors. Rather than putting pen to paper to craft a personal note, we’re shooting off speedy and terse e-mail messages. On the business side, formal business letters are being replaced with e-mail notes, proposals, contracts, RFPs…almost our entire gamut of business communications that formerly was done by mail and fax. I remember getting our first company fax machine. We were wowed by the breakthrough in technology and thought that nothing would ever replace it as a method of quick communication. How wrong one can be!
Catalogers have for some time looked at the Internet as a new business model that could, if not eliminate, at least reduce the heavy reliance on the U.S. Postal Service. They are starting to see some significant results in the use of e-mail campaigns, or as we refer to them, “push” e-mail promotions. The challenge is that we are just starting to learn about the metrics of this new medium.
Catalogers have a terrific understanding of analytical measurements that drive their businesses such as:
- cost to get a customer
- lifetime value, analyzed by various media such as lists, space ads, and package inserts
- traditional breakevens (as discussed in the November and December issues of Catalog Age)
- financial model of a profitable catalog
- profit and loss details
- cash flow
- return on investment.
The problem is that we don’t know enough about customers coming from the Internet and those who prefer to use it for e-commerce.
Successful marketers are looking at how they can integrate the Internet into every aspect of their other selling channels. The winning multichannel firms are already working to integrate the Internet with their databases, creative, merchandise, circulation planning, and financial tracking.
This attempt at integration can influence whether you decide to execute your push e-mail campaigns internally or use outside providers such as Shop2U, DARTmail, and ClickAction. One major advantage of a qualified outside provider is that it can help you integrate your database, merchandising, creative, and circulation strategies to customize and personalize the contact effort with customers.
Analytical benchmarks for e-mail campaigns
First let us determine what you can expect with a push e-mail campaign. To put this discussion in perspective, we should review the historical goal of a catalog campaign. If a cataloger could generate $1,000 of revenue per 1,000 catalogs mailed (or $1.00 sales per book), this was close to a variable breakeven. This calculation is based on a typical catalog cost in the mail of less than $0.50 and a 50%-60% gross margin. (Again, you can review this calculation in the November and December issues, or online at www.CatalogAgemag.com.) As postage and printing costs have dramatically increased during the past five or so years, we see this variable breakeven goal sliding upward (to maybe $1.25 per catalog or even higher). Also, most catalogers expect their customers to generate a much higher revenue per catalog to cover company overhead and profitability.
What can a cataloger expect in sales per 1,000 e-mails sent out? It will depend on the number of products and average order value of the items being promoted, the creative format of the e-mail, and how compelling the offer is. Here are some ranges, based on early industry experience:
Inhouse effort, text only, not personalized or customized = $50/M-$100/M in sales
HTML effort without personalization or any product customization = $130/M-$200/M in sales
Personalized and customized promotion = $200/M-$500/M in sales.
Catalogers need to test and understand the level of response they receive and compare it to the breakeven analyses shown below.
Understanding the e-mail breakeven
The chart below is not much different from the tables shown in the past two editions of this column.
The major difference in the breakeven is in the cost per promotion piece. Where catalogers can spend $0.50 or $0.75 or even $1.00 per catalog in the mail, the beauty of an e-mail effort is that we can communicate with customers for pennies. The breakeven shows three examples with a common $100 average order with varying promotional costs.
Example A might depict a cataloger that does all the e-mail work inhouse and has minimal fixed costs of creating the e-mail as well as a minimal cost of sending it out. The bottom-line breakeven sales per 1,000 e-mails sent is just $53.40/M, or just more than a half-cent per e-mail. ($53.40 divided by 1,000 = $.05340.)
Example B would be a realistic breakeven if the catalog was doing some of the work inhouse and using an outside resource for part of it. With a $0.02 fixed cost and a $0.05 variable cost, the total cost of $0.07 per piece still seems very reasonable. The breakeven is more than double that of Example A: $124.60 sales/M at the 0% (variable) level and $195.80/M at the fully loaded breakeven, or 20% level.
Example C is a more typical case where a cataloger is outsourcing its entire e-mail promotion. The total of $0.12 per piece ($0.10 for the e-mail and $0.02 for creative costs) is on the high side, with corresponding higher breakeven sales ($213.60/M at the variable level and $338.20/M at the fully loaded level).
E-mail marketing phenomenon represents a major opportunity for catalogers and those who understand the use of direct marketing. By better understanding the industry numbers, metrics, and especially, how the breakeven works for e-mail marketing, you have a better chance to apply — and succeed with — this marketing technique.
Jack Schmid is president of J. Schmid & Associates, a Shawnee Mission, KS-based catalog consulting firm.
Breakeven Analysis by Order: Push E-Mail Campaign
|Example A||Example B||Example C|
|Average order value (AOV)||$100.00||$100.00||$100.00|
|Net order sale||$89.00||$89.00||$89.00|
|Cost of goods (40%)||($35.60)||($35.60)||($35.60)|
|Fulfillment cost per order||($10.00)||($10.00)||($10.00)|
|Fulfillment income per order||$6.00||$6.00||$6.00|
|Net fulfillment expense order||($4.00)||($4.00)||($4.00)|
|Contribution (before promotion, overhead, and profit)|
|Contribution at 0% (variable costs only)||$49.40||$49.40||$49.40|
|Contribution at 20% (variable costs, overhead costs, and profit)||$31.60||$31.60||$31.60|
|Cost per promotion piece||$0.01||$0.05||$0.10|
|Fixed creative cost ($500 divided by 25,000 e-mails)||$0.02||$0.02||$0.02|
|Total variable and fixed promotion cost||$0.03||$0.07||$0.12|
|Breakeven response = total promotion costs divided by contribution|
|Breakeven sales = breakeven response × net order sale × 1,000|
|Breakeven response at 0% (variable level)*||0.06%||0.14%||0.24%|
|Breakeven sales per 1,000 e-mails||$53.40||$124.60||$213.60|
|Breakeven response at 20% (fully loaded level)*||0.09%||0.22%||0.38%|
|Breakeven sales per 1,000 e-mails||$80.10||$195.80||$338.20|
|*Percentages have been rounded|
By the Numbers
The Forrester Report, in a recent survey, reported that 92% of marketers use e-mail for retention or customer marketing, while 60% use it for prospecting. From personal experience, I know of few catalogers that have had much success with prospect e-mail campaigns. Working the customer list for stronger communications and additional sales — absolutely. But be cautious with prospect e-mail campaigns, and be certain to track and measure results accurately. Most catalogers today are aiming push e-mail campaigns primarily at the customer list — specifically those from whom you have received an e-mail address and who have opted in, or specified their willingness to receive information on new merchandise, special sales, or events.
This year we expect to see a phenomenal growth in the number of e-mails transmitted in cyberspace:
- Jupiter Media Metrix, a New York-based research firm, found that the average consumer will receive 1,466 unsolicited e-mail messages a year. That’s more than 28 a week.
- A study by DoubleClick indicated that Internet users averaged 36 permission-based e-mail messages a week in 2001, almost double that of the previous year.
- Jupiter expected annual e-mail marketing spending to have jumped 79% in 2001.
What do these numbers tell us? E-mail communication is here to stay. It has become part of our daily personal and business lives — and to some, almost an obsession. (“I must check my e-mails every 15 minutes, or I am out of touch!”)