• by editor , David Baker , March 13, 2006

In the February 20^th edition of "E-mail Insider," one of my gurus, Richard Rushing, helped me articulate a basic model for determining the financial value of an e-mail address. Building on this and the response from some readers, Richard added more insight from a strategist's point of view.

In the original article, we presented an example in which a marketer determined that the average value of an active e-mail subscriber was $6.40 annually. Further, there were one million active subscribers, for an aggregate list value of $6.4 million. But what does that really mean to the marketer? Here are a few ideas on how to integrate the results into your marketing efforts.

Determine the value of your most engaged segments. The model gives you the average across all subscribers, but you'll also want to know the value of your best customers. The methodology is the same; simply apply the model to the group(s) you have identified as being most valuable. The financial value of their e-mail addresses should be much higher than that of average subscribers. This should also encourage efforts to increase the opt-in percentage of this group.

Drive higher incremental revenue. If the number of campaigns is held constant, then targeting becomes a key driver of improved relevance and response. Understanding your customers' preferences, behavior, and demographics is absolutely critical to presenting them with offers that will satisfy them and bring you higher revenue.

Send more campaigns. Since the number of campaigns is a basic component of the value equation, adding more is a simple way to increase the overall e-mail value per subscriber. But be careful, as this approach may lead to more opt-outs, which will reduce the overall list value. It also assumes that incremental revenue per e-mail remains roughly constant. This value may decrease as more people choose to ignore your e-mails (but not opt-out) due to the higher volume. You'll want to test here, and closely monitor your unsubscribe and response rates.

Reactivate inactive subscribers. In the example above, the marketer has one million active subscribers. But suppose the overall list is two million e-mail addresses. That implies there are potentially a million names to reactivate. There are a number of ways to do this, but a success rate of even 5 percent to 10 percent can have a huge impact on the overall value of the list. This is where the model is particularly helpful. By showing the value of an active subscriber, it can help you prioritize reactivation versus acquisition efforts.

Focus on list hygiene and deliverability. This is always an important consideration, but now you can more easily justify the decision to use direct mail (or some other means) to reactivate undeliverable e-mail addresses. Is it worth spending around 25 cents (give or take a few pennies) to reacquire an e-mail address that is worth $6.40 a year to you? Probably so.

Grow your base (carefully). If you have a small number of inactive subscribers, then your efforts may be better directed at growing your base. As always, tread carefully, since sacrificing quality for quantity can quickly drop your e-mail address value. You'll also want to consider your cost of acquisition and list churn data into your acquisition efforts. For example, if you are spending $15 to acquire someone who is worth $6.40 a year, and who only stays opted-in for a year, that may not be the best ROI decision.

Budgeting. This model is one of the many metrics which show the high value and ROI of the e-mail channel. Use it to support your requests for additional resources and budget.

Keep the model current and address any changes. Don't let all your hard work turn into a one-time snapshot that is a "nice to know" number. Once you've set up a process for determining the value of an e-mail address, keep the model current. This way you'll be able to set goals, benchmark against those goals, and immediately identify any problems.

It's a lot of work, but the resulting valuation is critical in taking your e-mail marketing program to the next level.