Email marketing is one of the oldest online advertising techniques, and yet, if done right, one of the most efficient in bringing you new customers and higher revenues. Sending emails and occasionally checking the click-through rate, however, will take you only so far. If you want to really benefit from the possibilities inherent in email marketing, you must implement well-designed, thorough implementation and optimization plans using KPIs.
What do you do with the data your email marketing tools generate? How do you use it to adapt your email marketing strategy? How do you analyze it to calculate whether it’s bringing results or not?
Our natural tendency is to look for ready-to-consume data. Take this Coschedule post, for example. It gives you the best times to send emails. That’s great, isn’t it? In fact, not so much. Arguably, it gives the illusion that, by setting the times of your campaigns to those indicated in the article, you have already optimized this dimension of email marketing as much as you can.
Reality is way more complicated, and each different segment of your audience will exhibit a different behavior pattern, demand a different type of content, and respond differently to your elevator’s pitch. Crafting a winning email marketing strategy is really about two things:
- Calculating the right KPIs for all your target groups.
- Leveraging the data you collect to improve each group independently from the others.
The most important email marketing KPIs
Let’s start by covering what you should measure (and how) when it comes to email marketing. The email funnel has four major steps and considerations:
- Opening the email: how do you capture the attention of the reader among many competing daily emails?
- Clicking on content or a link in the email: does the content actually meet your user’s needs?
- Interacting on the website: is the content on the website aligned with the email’s pitch?
- Converting the visitor into a lead or paying customer: is the content on the website effective for generating conversions?
The fourth one is more about conversion optimization. With that in mind, let’s explore a few KPIs that are essential for analyzing the efficiency of your email marketing campaigns.
1. Open rate
The open rate targets the first stage of the email conversion funnel. It’s simple to calculate and requires just dividing the number of emails that were actually opened by the total number of emails delivered.
Open rate = Emails opened / Emails delivered
A low open rate should be a serious concern. Customers that don’t open emails will never become leads through email marketing efforts. To help you improve this indicator, HubSpot provides a great guide with several email optimization techniques.
2. Click-to-open rate
The click-to-open rate (CTOR) is a better KPI than the universal CTR (click-through rate). The CTR tells you the percentage of users who received the email and then clicked on a link in your email. The CTOR tells you the percentage of the users who actually opened your email and then went on to click on content in that email. This is why we highly suggest you use the click-to-open rate, given by the following equation:
CTOR = Total clicks (or unique clicks) / Number of opened emails
Why opened instead of delivered emails? Because this allows for a decoupling between the first and the second stages of the aforementioned email marketing funnel. Here is an example:
- Situation 1: You send 1000 emails, 800 are opened and you obtain 200 clicks. Your click-through rate is 20%, and your open rate is 80%. The click-to-open rate is slightly higher than the CTR, staying at 25%.
- Situation 2: Now consider another situation. You send 1000 emails, 300 are opened and you obtain 200 clicks. Your click-through rate didn’t change at all (it’s still 20%), but your CTOR went drastically up to 66.67%.On the other hand, your open rate dropped considerably to a mere 30%.
If we use CTOR instead of CTR, the differences and implications of both situations suddenly become much clearer. In the first scenario, your problem is with the content of the email, not with the headline or the way you first present it to the user. In the second one, the problem is exactly the opposite. You’re having trouble getting people to open your email, but once they do it, the email is highly effective. The focus, therefore, should be on optimizing the open rate rather than the content of the email. This distinction is not clear if you use CTR, and this is why we strongly suggest you focus on open rate and CTOR.
In addition to HubSpot’s guide mentioned above, Kissmetrics provides a great article on the topic (while it mentions click-through rate, its suggestions are all focused on the content of the email, which definitely works for optimizing your CTOR).
3. Conversion-to-click rate
You already know what conversion rate is. What you might not have realized is that it also suffers from the same problem as the click-through rate: the baseline for calculation is normally the number of emails delivered. Let’s immediately update this indicator to derive a much more insightful KPI: conversion-to-click rate.
If you implement a simple conversion rate, you are aggregating three stages of your email funnel: opening, clicking and converting. Remember, we want to keep KPIs as independent and as clear as possible, so we can identify which specific stage of our funnel is problematic.
Conversion-to-click (CTC) does exactly that. It calculates the percentage of users that converted into leads or paying customers (it’s up to you to define the exact meaning of a conversion, and you are free – and encouraged – to define multiple “intermediate” conversions) based on the total number of clicks from emails.
CTC Rate = Number of conversions / Number of clicks
Why would you want an indicator like that? The principle is the same: 50 conversions out of 1000 delivered emails do not tell you much, it simply tells you that, on average, 5% of your email subscribers will convert. How to increase that? Is the open rate the problem? The CTO? The CTC? It’s not possible to know if you just compare conversions with the number of emails delivered.
Consider two campaigns: number 1 leads to 400 clicks and 50 conversions per 1000 emails; number 2, to 200 clicks and 50 conversions per 1000 emails. If we use the normal conversion rate, we would end up at the same place (5%), but the truth is that the second campaign is considerably more effective in generating conversions (probably due to better landing pages and content) while the first is better at generating clicks. How can we learn from both and improve our email marketing strategy?
4. Growth rate of each email list
Another one of the need-to-know email marketing KPIs is the growth rate of each email list. We all want to grow our list of subscribers. But… Is it better to acquire 10 new leads that are highly interactive or 100 leads that barely open any of our emails and end up unsubscribing themselves after a while?
The growth rate is not only about quantity, it’s definitely also about quality. So, in addition to how many extra subscribers you acquired over a period of time, you also want to consider how many you lost, how many complained that you are spamming, and how many are cold leads (fake emails, like someone who writes email@example.com just to pass the front-end email verification and get access to your content).
To accurately calculate the growth rate of each email list, you can use the following equation:
Growth rate = [# of new emails – (# of unsubscribers + # of spam complaints)] / # of emails
Remember to be consistent regarding the time span for calculating the growth rate and, more importantly, avoid switching subscription campaigns in the middle of the measurement period. If you establish you will measure the growth rate every two weeks, you should update the campaigns at the beginning of each measurement period to avoid mixing the effects of the old and the new designs in the indicator. This way, you will be able to isolate the effects of each campaign and estimate which one leads to a higher growth rate.
5. Bounce rate
If users don’t see any value in the content you are offering, they are less likely to provide reliable information (real email addresses, real names, among other data you might request). As a consequence, you will notice an increase in the bounce rate of your campaigns (the number of emails that are not delivered to the final address).
The bounce rate is easy to calculate:
Bounce rate = # of bounced emails / # of emails sent
What is interesting to analyze here is the rate of change of the indicator. This tells you whether your content is improving or getting worse. If the number of bounced emails grows faster than the number of emails sent (assuming your “sending rate” is constant), the perceived quality of your content is decreasing. If the bounce rate grows more slowly, the perceived quality is increasing.
Use the bounce rate wisely to experiment with different landing pages and types of content, as it has the potential to give you many insights into your audience’s expectations and tastes in terms of content.
6. ROI of each email marketing campaign
We are on our last essential KPI; you want to know whether your email marketing campaigns are actually profitable or not. The formula for ROI is simple and intuitive:
ROI = (Revenue from campaign – Cost of campaign) / Cost of campaign
If it brings more revenue than costs, you have positive profits and you can calculate how much percent of your initial investment they represent. If the ROI is negative, you know that something is going wrong and should be revised.
ROI, however, doesn’t give you much further information on what exactly can be optimized. The KPI is definitely a must for checking whether you are, on a macro level, succeeding, but on a micro level, you should focus on the indicators presented above (and others, if you judge they are needed).
Since ROI is a “consequence” rather than a “cause”, I would recommend you focus your efforts on more concrete and detailed indicators. They have the real potential of offering you actionable insights into your audience behavior and how to tailor your email campaigns and content to their specific profile.
The bottom-line of this article is: don’t look blindly at KPIs. They are not just numbers, they are there to tell you a story. They exist for you to understand whether you hit the right target when optimizing your campaigns or whether you took the wrong turn. Setting up KPIs should not focus on showing numbers to those reading your reports, it should focus on identifying measurements for the key stages and components of your email marketing funnel.
The new approach we provided here to six widespread email marketing KPIs is aimed at giving you a strong push to revising your own strategy. It’s time to rethink whether you are measuring the right elements and whether you are looking at the results through the right lenses. Assume this critical posture, and you will notice that in no time you will get a much better understanding of how to improve the overall performance of your email marketing efforts!