What’s the value of an email subscriber?

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Glenn asked the great question:

To calculate the value of an email subscriber, better to treat as 1-time (funnel math 101) or an annuity, since they get multiple emails w/multiple offers?

This is a great question because it forces us to think about how we measure a single action with multiple consequences. The short answer is treat them like an annuity.

The much longer answer is that we must calculate the lifetime value of our customers, then spread that value over the percentage of customers we acquired from email marketing, either directly or indirectly. I go into this in great detail in my Data-Driven Customer Journey Mapping course, but we’ll walk through a summary version here.

To do this calculation, you’ll need your marketing operations funnel charted out. A reminder: while funnels are bad for the customer experience (they’re for the convenience of marketers at the expense of customers), they’re good for marketing operations and role definition.

Customer Lifetime Value

What’s the value of a customer? This data comes from your CRM or ERP system, and is typically the lifetime revenue generated by the average customer, subtracting the average customer acquisition cost.

Sales Closing Rate

Once you know the net value of a customer over their lifetime, discount that value by your sales closing rate. For example, suppose we use my book, Leading Innovation. The value of a customer buying that book averages $25 in revenue. If 10% of the people who visit the eCommerce page buy the book, the effective value of a prospective customer is 10% of $25, or $2.50.

Be precise! If you can extract the value of a prospective customer per channel — like email marketing, social media, etc. — do so!

Email List Value

If I know that anyone who clicks on a link to my book from my email list is $2.50, then my next step is to determine what percentage of my email list has clicked on the link to my book. If I have 15,000 subscribers and 10% of them have clicked through, I know that 1,500 subscribers are effectively worth $2.50 each. If I spread out that value over the entire subscription base, then a subscriber is effectively worth 10% of $2.50, or $0.25 each.

Multiple Products / Streams of Revenue

The above example assumes I have just one book for sale and that no customer would ever buy more than one, two assumptions I dearly hope are false. The reality is that I have multiple products for sale, each with different sales closing rates, and to calculate the value of a subscriber, I’d need to do the above exercise for each product line to ascertain the lifetime value of a customer.

If your sales process is more complex, with multiple stages of qualification (as is typical in B2B/high complexity transactions), extend the math to each stage. For example, if you have marketing qualified leads, sales qualified leads, nurture opportunities, deals, etc., you’ll need to compute your win/loss rates for each stage, then spread out the value of a subscriber over each stage.

Once we know the effective lifetime value of a subscriber, insert this goal into Google Analytics as a goal conversion value. Every time a subscriber joins your list, you’ll have projected revenue based on your conversion rates above.

Recompilation

Important: don’t just set it and forget it. Recompute and recompile your data frequently — once per quarter at least — to ensure you’re accounting for changes in your subscriber base. After a major marketing initiative like a new website launch, new eCommerce platform, new marketing automation software, etc., be sure to recompute almost for 30 days.

The Value of a Subscriber

The value of a subscriber is whatever they are worth to you. If you see them as a single transaction, then treat them as such. If you see lifetime value in them, also treat them as such. The bigger question is whether you can compute the lifetime value of any customer — and that’s where you’ll find the real money.



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Originally published at Christopher S. Penn Blog.