Practical Ecommerce

How to Calculate the Value of an Email Subscriber

Many merchants rely on email marketing to drive sales. Increasing the number email subscribers can drive sales even more. By establishing and understanding the value of an email subscriber, merchants can decide how much money and effort to spend growing their lists.

This article will explain one method to assign a value to an email subscriber.

Step 1: Determine How Many Subscribers You Have

This is relatively easy to obtain. Simply go to your database and see how many active email subscribers you have. Look at the last email you sent to your entire file to get a better sense of deliverability so you don’t include bounced or old emails that may not be deliverable anymore.

Step 2: Estimate Sales Over the Past Year from Email

This number may be more difficult to calculate, as there are several ways in which email may impact a potential conversion.

  1. Direct sales. Sales coming directly from clicks from an email campaign.
  2. Promotional code sales. This is for sales coming through your site or over the phone that may have a promotion or offer code that is directly related to an email promotion, but did not result in a straight click-through.
  3. Search and “direct-load” sales. These are for instances when customers receive and open an email, then search your site or go directly to your site to shop. These sales are frequently credited to another channel.
  4. Overall increase in sales. After an email campaign goes out, most sites see an overall increase in traffic and sales that are not attributed to the email itself. People may forward emails, share over social networks, and spread your offer in numerous ways that are not easily tracked.

Many retailers struggle with accurately estimating the true sales attributed via email. Direct sales associated from specific click-throughs become the default. This is a solid number to use, but always remember that it is a conservative estimate and most likely greatly understated.

Step 3: Assign a Timeframe

Decide what timeframe makes sense for your site, taking issues like seasonality into consideration. Using a 12-month timeframe may work well and we’ll use in our example below.

Step 4: Calculate Your Subscriber Value (SV)

Let’s use the following example from an online retailer.

A. Number of active subscribers (X): 265,000
B. Sales attributed to email through direct clicks over the past 12 months (Y): $3.3 million
C. Apply the equation SV=Y/X
D. SV= $12.45 per subscriber, per year

Now that we have an estimated, annual value per subscriber, we can estimate the lifetime value by looking at the average time between first and last purchases within your file. For this example, let’s assume 1/3 are one-time buyers, 1/3 will purchase for 2 years, and 1/3 will purchase for 3 years.

  • 88,333 subscribers * $12.45 = $1,099,745
  • 88,333 subscribers * $24.90 = $2,199,491
  • 88,333 subscribers * $37.35 = $3,299,237
  • Total Value: $6,598,473
  • Divide by original number of subscribers (265,000)
  • Final per subscriber value: $24.90 per subscriber

Step 5: Analyze Results

The above methodology has several shortcomings. For one, it ignores the time value of money. A sale three years from now is worth less than a sale this month.

Conversely, the methodology calculates sales only from direct clicks. And it assumes no sales from the list after three years. Many subscribers will continually purchase for years, increasing that per subscriber value accordingly.

In the end, our final “lifetime” estimate of approximately $25 per subscriber is important. We now know how to quantify our efforts increase our email database, and what type of return on investment we can expect from them. For example, a marketing campaign that ends up costing $50 per email subscriber is likely too expensive. A campaign that costs, in the end, $10 per subscriber could provide a positive financial return.

Every online retailer is different and some databases may be more or less responsive to email sales than others. However, this “per subscriber” valuation — while an estimate — may help merchants estimate the overall value of their lists, and decide how much money to spend growing them.

Carolyn Nye

Carolyn Nye

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Comment ( 1 )

  1. Charles Nicholls August 23, 2011 Reply

    Great piece Carolyn – thank you for sharing.