One of the benefits of working with such brilliant clients is that they like to challenge us as much as we like to challenge them.  We had a great question from a client last week, which sent us off to check our own thinking.

Q: “What is the correct way of recording absolute sales conversions from an email?  Do we take the total sales and divide by the total delivered (ie less bounces) OR divide by unique opens OR divide by Clickthroughs?”

We had a pow-wow and also posted the question on some email-geek blogs around the world to see what came back.

The answer? Like many of email marketing’s answers – ‘it depends’.  Here’s a round up of the best answers.

Steve from U.K.: “They are all valid measures, but for different things.  Ultimately conversions and total conversion value are the absolute measures of the end-to-end success and effectiveness of a campaign. But to get a conversion, the emails and the customers need to jump through a few hoops – the other measures you mention (plus others) show the drop off and success rates at each stage. By thinking of the conversion process as a drop off (delivered, opened, clicked, put items in basket, purchased), and looking at each step you can understand which parts of this process are particularly strong or weak for your client, and can help make targeted improvements.  For example, a high drop off rate between putting items in the basket and purchasing might identify a problem with the checkout process, or might highlight that there would be benefit in using a dropped-basket-recovery service. A high open rate with a low click rate might mean that there is not enough reason to click-through, or that the list targeting was off.  But to reiterate that first point, I make sure that the total conversion value is made very clear – while drop-offs and open rates are nice, I have seen nothing that make people happier about an email campaign than big fat dollar signs!” (Ed: After this answer I was moved to offer Steve a job here in New Zealand but he said he loves the north of England so much he’s staying put!?!.)

Rene from Germany: “As far as I know the “conversion rate” is not standardized in email marketing. thus it’s better to speak of “conversion-to-click”-rate or “conversion-to-sent/delivered”-rate respectively, to prevent guesswork.  But most people refer to the latter one when refering to “conversion rate”, i.e. “goals / delivered emails”.   Although in the rest of the online marketing sphere it’s defined as goals / clicks (“visitors”). So if you want to measure landing page effectiveness, use clicks as denominator.  If you want to included the effectiveness of your creative, use “unique opens”.  If you also want to include from+subject, divide by “delivered”.  If you want to compare with direct mail, use “sent emails” instead, and so on … as Steve said: they are all valid measures”.

Dave from Oregon: “Steve’s answer is right on target. I would add that tracking the source of the lead or email address and any significant costs of converting the lead will tell the client which investments in leads are producing the most in sales. This is the critical information they need to manage (and grow) their return on markting investment”.

And finally, from Adam from New York: “There are a few options here with the metrics you provided. True ROI would be total sales divided by total sent. It would be truer than dividing by total delivered because you in fact paid to send to the email addresses that bounced. You would then need to add in any other investments such as cost of designing the email.  Dividing the total sales by opens and click-throughs will give you a good idea of how much each open or click is worth to you, good for projecting future sales, and how much money you stand to make if you increase your open and click-through rates. Also, looking at total sales over click-throughs may show you that your landing page is not working as effectively as you think or hope. For example, you are getting a lot of click-throughs to a page and a small percentage are purchasing.”

UPDATE 28 July: Subhashish from India has countered with the idea that for every campaign their should be an individual ROI, based on that campaigns own goals.  Nice. Obvious. Missed!  Here are his comments:
“Hello guys! Just came across this posting and the replies/comments mentioned herein, and if I may add, I beg to differ with everyone based on my little experience of handling commercial email marketing campaigns worth millions of dollars from fortune 100/500 clients in the past. Its not how the campaign will calculate ROI, its how the campaign was designed to be delivered. What was the KPI for the campaign? Was it a typical eDM campaign, or was it a CPM sales, or CPA, or CPC or CPL campaign? Have handled numerous successful campaigns, and it totally depends on the campaign KPI. To be brief, will mention 2 cases. 1 of our clients wanted “# of registrations” on website. We shot 30million emailer (unique email ids) after doing A/B tests, and we got outstanding delivery, total opens, unique opens, total clicks, unique clicks, registrations as well. Client happy, we party! Cause the landing page had both “free registrations” and “paid registrations”. And out of per 100 registrations, our predictions/evaluations from the db was: 25% would be paid, 75% would be free (which would later be converted by sales team in-house). And client got: 50%-50%. Result – party all night. Next month, another similar client, but wished to get: registrations for an online gambling software. We got massive opens, massive clicks, high registrations, but very few downloads. Now, since KPI was “# of registrations”, we were happy, but client was pissed off. So ROI was wrongly defined here. Thus, we ran another make good campaign, created a new landing page… and so on, and voila! new campaign, all success, party all night long. So the crux is: I used to run 88 multi-million dollar campaigns per month (when all taken together), each had 88 unique ROI. As simple as that. So, when the sun goes down, its all that gut feeling that will either make the campaign a success or fail; thereby either achieving or not achieving the ROI for the client as well as for you.”

So, did that help?  Or are you more confused than ever?  Do you measure R.O.I?  Does your Marketing Manager or CEO or CFO care about return on investment for marketing? If you have any to add we’d love to hear them.  And of course, we’d LOVE your questions too.