Email Cost Metrics: Advanced Calculation

Measuring and optimizing the costs of email marketing campaigns is a critical component of running successful programs that drive ROI. This guide dives deep into advanced methods for calculating key email cost metrics, providing step-by-step instructions, real-world examples, and industry best practices. Whether you're new to email marketing or a seasoned pro, the information here will help you effectively track costs, identify optimization opportunities, and maximize the value of every email sent.

Understanding Email Cost Components

Before diving into calculations, it's important to understand the various cost components that make up an email campaign:

• ESP costs - Fees paid to your email service provider for sending emails, often based on volume
• Design/development - Costs for creating email templates, graphics, and interactive elements
• List acquisition - Expenses related to growing your subscriber list through ads, content, etc.
• Personnel - Salaries or contractor fees for strategists, designers, and other email team members

Here is an example breakdown of typical email campaign costs:

The following diagram illustrates a typical breakdown of email marketing cost components:

Calculating Cost Per Send (CPS)

Cost per send (CPS) is the most basic email cost metric, representing the total cost to deploy a single email campaign. Here's how to calculate it:

For example, if your total costs for an email campaign are $500 and you sent the email to 10,000 subscribers, your cost per send would be:

Tracking CPS over time helps you understand changes in email costs and sending volume. A rising CPS may indicate you need to optimize your campaigns or look for cheaper deployment options.

Benchmarking Cost Per Send

Wondering how your CPS stacks up? Here are some industry benchmarks:

PRO TIP Keep a close eye on industry benchmarks and strive to keep your CPS in a healthy range compared to peers.

Measuring Cost Per Open (CPO)

Cost per open takes CPS a step further by measuring the cost for each recipient who actually opens your email. This metric provides insight into the true cost of reaching engaged subscribers.

Let's extend our earlier example. If the email campaign that cost $500 to send to 10,000 people received 2,000 opens, the CPO would be:

If your CPO is high, look for ways to improve your open rates through better targeting, subject lines, and send time optimization. Even small gains in engagement can significantly reduce costs.

The following diagram shows the relationship between CPS, CPO and key engagement metrics:

Calculating Cost Per Click (CPC)

Cost per click is a key indicator of the ROI of your email campaigns, as it measures the cost of driving a recipient to your desired conversion action, such as visiting a landing page or making a purchase.

Continuing our example, if the $500 campaign generated 500 clicks, the CPC would be:

To put this in perspective, here are some typical CPC benchmarks for email:

If your CPC is on the high end, look for ways to make your emails more compelling and drive higher click-through rates. This could include:

• Optimizing your calls-to-action
• Segmenting campaigns to better match subscriber interests
• A/B testing email content and offers

CPC vs Other Channels

One of the key benefits of email marketing is driving low-cost conversions compared to other channels. For context, here's how average email CPC compares to common paid media channels:

The following diagram compares typical cost per click ranges across digital marketing channels:

Determining Email ROI

The ultimate measure of email marketing success is return on investment - how much incremental revenue is driven for each dollar spent. Email ROI is calculated as:

For example, if an email campaign generated $10,000 in sales and cost $2,000 to deploy, the ROI would be:

In other words, for every dollar invested in this email campaign, the company generated $4 in revenue.

Across industries, email marketing has one of the highest average ROIs of any channel:

Source: Litmus Email Marketing ROI Report

Improving Email ROI

To maximize email marketing ROI, focus on two key areas:

1. Reducing costs through efficiencies like automation, template reuse, and competitive ESP pricing
2. Driving incremental revenue with advanced segmentation, personalization, and trigger-based campaigns

The following diagram illustrates how email programs can progressively optimize ROI through automation, segmentation and personalization:

Bringing It All Together: An Email Cost Optimization Roadmap

With a solid grasp of key email cost and ROI metrics, you can develop a systematic approach to improving performance. Here's a sample roadmap: