RPE is simple to calculate – you take the total revenue which was generated and divide it by the number of email addresses that received email (the quantity sent minus the bounces). A simple example appears below.
Now, RPE isn’t a perfect metric; it has its issues. For instance, it doesn’t go directly to bottom line. No matter how high your RPE is you won’t really know if you made money.
But here’s the thing: the only metric that gets you profitability is Return on Investment (ROI) calculated with complete knowledge of all costs (not just marketing costs, but all costs). This is doable but daunting for most organizations, especially those with multiple business units.
RPE is much easier to calculate (see above). And while it doesn’t directly speak to the bottom line it does speak to revenue – which open and click-through rates, and even conversion rate, do not. So although RPE isn’t an absolute measure of profitability, it is a relative measure of revenue generated. And that can be useful.
There are many ways to use RPE, but one of my favorites is to do a ‘macro’ analysis on my clients’ overall email marketing programs – here’s one example.
This is from work I did for Scholastic, a publisher of books and educational materials; as the title suggests this isn’t actual Scholastic data. It’s sample data that is based on what we saw at Scholastic, which we used in a pseudo case study on the project that Sanije Gjokaj from Scholastic and I presented at an industry conference. Let me know if you’d like a copy of the full deck.
Here we used RPME, or Revenue per 1,000 Emails Delivered, instead of RPE, just to give us larger numbers to work with.
The blue is year 1; the purple shows year 2 of the analysis. Because of the seasonal nature of the business, we look at 1Q vs. 1Q in consecutive years instead of looking at 1Q vs. 2Q of the same year.
The bars indicate the quantity of email sent – as you can see the sample data shows year-over-year increases from 19% to 52%.
The lines show the sample RPME. As you can see, year 2 is lagging year 1 in every quarter.
This showed us that although Scholastic was sending more email year-over-year, the average revenue generated per email was declining. Significantly. This is not an uncommon occurrence. Many companies try to increase revenue by sending higher volumes of email; it’s relatively inexpensive to do so. But it’s rarely a long-term revenue growth strategy.
This analysis was the jumping off point for a more granular analysis of the program, which gave us the information we needed to change the way Scholastic approached email – and to reverse this trend of decreasing RPME in just a few quarters. The changes we made included ‘carrots’ as well as ‘sticks’; here are some examples:
- Providing resources from the digital and IT teams to assist senders with:
- List modeling, to better target the most-likely-to-buy segments and generate the same or more revenue while decreasing send quantities
- Creative testing, to develop strategic test plans to improve bottom line performance, again without increasing send quantities
- Offering the opportunity for business units to contribute content to an ‘all Scholastic’ email which would be sent every other week to key lists
- This email would not be counted toward their send quantities limit
- It was basically a ‘freebie’ promotional opportunity
- Mandating a 10% year-over-year drop in quarterly send quantities for promotional email messages
- We excluded newsletters and other messages that were both (a) primarily non-promotional in nature and (b) sent in response to an explicit opt-in
- We also offered resources to help boost the performance of each send (see the carrots above)
- Limiting email touches to 2 per week per recipient
- The old limit was one per day
- Under the old limit the number of people receiving email every other day had quadrupled year-over-year; the median had also risen dramatically
Two years later things had turned around dramatically. Year-over-year quarterly RPME was steadily increasing, to the tune of 150% one quarter. And send quantities were no longer increasing.
Intrigued? I love to talk email and to help clients make their email programs more effective and more profitable. Shoot us an email [email protected] if you’d like to chat about your program and how our quantitative approach to email marketing strategy can help you meet or exceed your goals.