• by Loren McDonald , Op-Ed Contributor, June 5, 2008

As an email marketer, you probably spend a significant amount of time and energy trying to grow your email lists. But, is that the best use of your valuable resources and budget? My question has two drivers: 1) the impact of list churn, and 2) the lifetime value of customers.

 

List Churn and Hurdle Rates

List churn may be the least-talked-about but highest-impact issue in email marketing. Look at the facts. While every list is different, the typical rule of thumb is that about 30% of your list's email addresses will vanish each year. This actual churn is comprised of bounces, abandoned/changed email addresses, unsubscribes and spam complaints.

Say you have a target to grow your list by 20% this year. But, if 30% of your list disappears every year, you actually need to grow it by 50% (your hurdle rate). To grow lists of 100,000 or 1,000,000 to 120,000 and 1,200,000, you need real growth of 50,000 or 500,000 subscribers respectively to reach your goal. Ouch.

Do you know and track your list churn/growth hurdle rate? If you don't, simply add up the monthly address churn, multiply by 12 and add your annual growth goal -- and presto, you have your hurdle rate.

Oh, and it gets tougher. I've been talking about the known or transparent list churn. But there is also the percentage of your list that goes inactive each month. These are people who don't unsubscribe, but who basically check out and rarely, if ever, open or click on your emails anymore.

While I'm not aware of significant research in this area, my own and others' analyses suggest that typically 1% to 2% of your list may be going inactive each month. This adds another 10% to 25% to your annual list hurdle rate.

 

Lifetime Customer Value

 

Oh, sure, retention isn't as sexy as acquisition, but it takes a smaller bite out of your marketing budget and usually delivers a higher ROI. While every company is different, a good rule of thumb is the Bain and Co. analysis that you spend about six to seven times more to acquire a new customer than to retain the ones you have.

Most companies use some form of a Lifetime Customer Value (LCV) calculation to understand the cost of acquiring a customer and the Net Present Value (NPV) of that customer's business during her useful economic life.

Simply put, LCV looks at what it costs you to acquire and market to a customer, their retention rate, average purchase amount and frequency, and other factors. This results in an average value of your customers over their lifetimes. You can download both a simple and complex LCV calculator from the Harvard Business School Toolkit.

In a column from 2006, David Baker argues that calculating the value of an email address is a better measure to gain management's attention over LCV.

Regardless of what formula or calculation method you use, you must know, even roughly, the value of your existing email customers to the organization. From this starting point, you can better assess how much of your resources you should focus on acquiring new email addresses versus retaining and marketing to existing ones.

 Plug Your Churn Holes at Each Step of the Email Relationship

So, if you are potentially losing 30% to 50% of your list each year to churn and inactivity, how do you plug the leaks? I've always liked to think of the stages of the email relationship as like moving from dating to divorce. It is important to work to reduce churn and inactivity at each stage. Following are just a few tips to consider:

1. Dating

This is where a prospect agrees on giving you a shot or gets cold feet and fails to show up for that first date.

 

• Make the opt-in process easy and trustworthy.
• Optimize your opt-in forms and process to reduce address loss during form completion and opt-in confirmation.
• Guide new subscribers how to add your email to their address books during the opt-in and welcome process.

2. Engagement

At this make-it-or-break-it stage, you win or lose subscribers according to how you handle the initial stage of the relationship. Develop a welcome program, not just a single welcome email. A welcome program takes new subscribers through a multistage process of ramping them up so they are engaged and see value from the get-go. Handle this part well, and you greatly increase your chances of a long-term marriage.

3. Marriage

There are a lot of keys to a successful email marriage, but at the core, you must create value for the subscriber and a mutually beneficial relationship. Working to fulfill your subscribers' needs and occasionally delighting them will keep your relationship strong.

 

· Move away from batch-and-blast approaches and to lifecycle- and trigger-based programs.

· Make it easy for subscribers to update their preferences.

· Monitor subscriber activity and work to re-engage those who are checking out of the relationship.

· Delight your best and most active subscribers/customers with rewards and exclusive offers and content. Let them know how special they are.

4. Divorce

It happens, but, aside from spam complaints, which are like restraining orders intended to keep you away, you can try to stay friends with those looking to say adios. While some of your subscribers will simply want out of the relationship, most just want to change some aspect of it.

Make this easy for them and offer alternatives to unsubscribing, such as a different format, different frequency, changing their profile/interests, other lists you offer that suit their needs better. Even showing how they can change their address easily could help retain or reclaim the relationship.

Yes, acquiring fresh new subscribers is important. But, it's only one half of the list-building equation. Keeping the ones you have is equally or more important to continuing to generate the impressive ROIs that makes email such a lucrative channel in your marketing program.