Every facet of internet marketing has its own vocabulary, and for beginners it can be difficult to effectively communicate your wants needs without a proper understanding of the terminology. Terms like “Open Rate”, “Click Rate”, “Conversion Rate” and “Cost-per-Click” can be a little intimidating for people when they are just getting started.
Without at least a basic understanding of the language of email marketing, it can be difficult to know what you need to track and what the measurements can tell you about the success or failure of your campaign.
What follows is a list of ten terms that are commonly used with email marketing campaigns, what they mean, how they are normally calculated and why it’s important to you.
1) Email List Size
This a pretty obvious one, it’s simply the number of unique email addresses in your list. If you are segmenting your email lists (and you should be segmenting) you’ll also want to track how many addresses you have in each segment as well. This number is a part of almost every calculation you’ll do, so don’t lose it. For my campaigns, I use what I call the “Net Sent” amount. This is the total sent minus both hard bounces and opt-outs. More on those later.
2) New Email List Subscribers
The number of people that have signed up since your last mailing. As your popularity grows, so should this number. However, we live in precarious times when it comes to internet marketing. More and more people everyday prefer to receive messages from brands via “on demand” sources such as Facebook, Twitter and even YouTube (thanks old spice guy). Don’t be too surprised when these numbers start to decline, just be ready to adapt.
These are also called “opt-outs”. Nobody wants to have people drop off their mailing list, but it happens. Keep an eye on WHO is unsubscribing though, if people are signing up and then quickly dropping off, you may need to adjust how you are attracting people because they are probably not getting what they thought they would. If you start seeing long-time subscribers leaving, it’s possible that your content has become stale and no longer is of interest to them.
4) Bounce Rate
Unfortunately, not every email you send will arrive at it’s intended destination. Bounces are either “hard” or “soft”. A hard bounce is the result of of bad addresses or technical failure and those messages will never be delivered. A soft bounce can be caused if the recipients mailbox is full, or even if somebody has an automatic vacation message turned on. There’s a good chance these messages will eventually be seen, but you can’t be 100 percent certain.
Hard bounces should be treated like unsubscribes and removed from your list. Some anti-spam tools will consider you a spammer if you continue sending mail to bad addresses – keep your list clean. If your system allows it, track your soft bounces as well, a consistently full mail box is a good indicator of an abandoned account and those should be deleted from your list.
Whether or not you include soft bounces in bounce rate calculation really depends on how quickly your company wants to calculate other measures. If they want a snap-shop of data after just 24 hours, then you should probably consider counting soft bounces. In any case, your bounce rate number should be SMALL and always shrinking as you remove the bad addresses.
I generally calculate both a long-term and a 24-hour bounce rate, but I have some fun with the math.
24-hour bounce rate = Hard bounces / (List size – Soft bounces). So, if I sent 1,000 emails, 5 bounced as bad and 30 bounced as “vacation”, our formula would be; 5/(1000-30) or 5/970 or 0.52%.
Long-term bounce rate = Hard bounces /List size. Using the same numbers, our formula would be 5/1000 or 0.50%.
Remember earlier I mentioned “Net sent?” Well, now that you know what hard bounces and opt-outs are, you should be more comfortable with what Net Sent is. For example, if you send 1,000 emails, have 10 hard bounces and 3 opt-outs, your Net Sent is 1,000-10-3, or 987. I use this value most often in other formulas because I don’t want my rates to be penalized for messages that have no chance of being impactful. However, to keep the math a little easier for this post, I’ll just be using the value for “Total Sent” in my examples.
5) Growth Rate
This is a measure of how quickly your list is growing (or shrinking, but hopefully that’s not the case). To calculate, simply find the number of new subscribers, subtract the number of unsubscribes along with the number of hard bounces and divide by the former total number of subscribers.
Growth Rate = (New Subscribers – Opt Outs – Hard bounces)/List size. For example; if your subscriber list was 1,000 names and you gained 20, lost two and had 5 hard bounces, your growth rate is: (20-2-5)/1000 or 13/1000 or +1.3%.
6) Open Rate
At last! Some “real” measurements! Open Rate measures how many times an email message was opened – sort of. More on that later. Open rates can be calculated two different ways, both are acceptable but whichever way you decide to do it, be consistent.
The first method is a measurement of how many of the people you sent an email to actually opened it at least one time. The second is a measurement of how many times the messages were opened. The difference is subtle, but very important. Consider the following example;
If you send a message to 1,000 people and 250 of them open it, using the first method, your open rate is 250/1000 or 25%. That’s pretty good.
However, if some of those 250 people opened it once at work, then again at home, your message might actually have been opened 350 times, using the second method would give you an open rate of 350/1000 or 35%. That’s better.
So which method is better? That’s for you and your company to decide, but like I said before, pick one and stick to it.
To determine when a message is opened, email marketers will use what’s called a “tracking pixel” or “web beacon”. A web beacon is usually a small transparent image that gets called from a web server. Each time the image gets called, that means a message was opened. There are two gotchas for tracking opens – it only works with HTML formatted messages and only if the recipient has images turned on. If images are not turned on, the receiver could open the message 1,000 times and you might never know (unless they click).
7) Click Rate
Click rate is a measure of how many times the link(s) in your marketing email or newsletter were clicked. Like with open rates, you have some decisions to make about what numbers you use and how. There are three ways (possibly more, but these are the common ones) to determine what your click rate is. Again, as with open rates, the difference in the formulas can seem subtle, but the results vary quite a bit with each. Consider the following examples;
You send a message to 1,000 people. That message has three links in it. If you only count the number of people that click links and 100 of them do, then your click rate is 100/1000 or 10%. Not bad.
What if some of those 100 people click more than one of those links? You might actually have 150 clicks. That means your click rate is 150/1000 or 15%. That’s better.
OK, so now what if some of those 100 people clicked a couple links at work, then at home clicked them a couple more times? You might now have 300 clicks. That means your click rate is 300/1000 or 30%. Wow! Big difference, right?
Which is the best? That’s for you and your company to decide, but you should probably use the same method for both open and click rates, and of course – pick one and stick with it.
Now for some good news – clicks are clicks are clicks. Huh? Unlike “opens” that rely on the email client to reach back to a web server and say “hey, I opened a message”, there is no way to mask a click. If somebody clicks a link in your message, whether it be an HTML message or not, they MUST end up on your server…and a click gets counted. Hooray!
Now for some more good news – if your delivery system allows you to track opens and clicks for each specific email address, you can track down people who click your links, but because they don’t allow images to show their emails, you think they never opened a message. Sweet!
8) Open to Click Ratio
This is a measure that is useful for estimating the effectiveness of message content and your “call to action”. It compares the number of opens to the number of clicks. For example, if you have an open rate of 50% and a click rate of 10% you’d be pretty happy, right? Lets do some more math – if those rates were based on a list size of 1,000 people, that would mean that 500 people opened your message and 100 clicked. Taking that a step further, that means that only 20% of the people who opened your message were compelled to click through. 100/500 = 20%.
9) Cost per Click
Start by determining the amount of time it takes an editor to write the message, a designer to lay it out and finally the web person to convert it to a properly formatted HTML message. Now, take that time and multiply it by an average salary for each of those people. That is your “human cost”. How you do this will probably vary some, but you get the idea.
Next, you need to determine your “technology cost”. If you use a 3rd party/outsourced solution, it will probably be easy to calculate since most vendors will charge you based on how many messages you send. If you use an internal tool to send your mail, work with your IT people to figure out what a good estimate to use is. They should consider the cost of the software, hardware and possibly even a maintenance person. My IT group arrived at a value of 1.2 cents per email for marketing messages I send.
Now add your human and technology costs to determine the campaign cost. For example, when sending a 1,000 email marketing message, the following applies;
Editor – 2 hours at $20/hour = $40
Designer – 2.5 hours at $25/hour = $62.50
Web Person – 3 hours at $35/hour = $105
Total Human cost = $207.50
Technology cost = 1,000 * $0.012 = $12
Campaign cost = $207.50 + $12 = $219.50
Whew! Hopefully your brain is not bleeding yet.
OK, now if your 1,000 emails received 200 clicks, your cost per click is $219.50/200, or $1.10. The lower this number is, the better.
10) Conversion Rate
Conversion Rate tells you how many of the people you sent a message to actually clicked all the way through your buying process and completed a successful check out (or completed whatever else your desired conversion is). This one is pretty cool – if you can do it. This is understandably difficult to measure for a lot of companies since it requires tight integration between your mass email tools and your e-commerce package. Thankfully, since the numbers are difficult to gather, the formula is simple. If you sent 1,000 emails and 3 people bought something, then your conversion rate is 3/1000 or 0.3%. Not great, if your profit is six cents per sale,but if you have a higher profit margin – happy dance!
Still with me? Good. Hopefully now you have a better understanding of the must-have metrics for an effective email marketing campaign.
Is there something you track that I missed? Let me know in the comments.