Have you ever taken the time to calculate the lifetime value of an e-mail subscriber? To do so costs you almost nothing, but the knowledge can be of great value to you, particularly when it comes to determining how much to invest in e-mail subscriber acquisition. To explain this, let's start by comparing the value of postal addresses and e-mail addresses. The cost to rent an individual's postal address is between four cents and 15 cents; however, to rent the same individual's e-mail address can cost 10 times that amount.
Why the difference? It's a simple case of supply and demand. The extremely low cost of sending e-mail increases the demand, while the 2003 CAN SPAM Act reduces the supply by making it illegal to acquire e-mail subscriber names in the same way that direct mail names are bought and sold. Certainly, obtaining e-mail subscribers via opt-in registration makes the most business sense, and there are a variety of techniques you can use. But each of these techniques cost money, and in order to know how much to spend on these techniques, you need to know the value of what you're acquiring.
How to Determine Subscriber Lifetime Value
Determining lifetime value is challenging, mainly because it is different for every market and every company. For example, a subscriber's e-mail address has one value to a retailer, but the same address could have a much higher value to a car rental company. In order to calculate lifetime value, you need to answer several questions. What percentage of your e-mails gets opened? How many result in sales, both online and offline? What is the average order value? What is the cost of delivery and fulfillment on products and services? Armed with these facts, you can develop a table (see Media Player at top-right of article).
Imagine this chart represents the calculated lifetime value of an e-mail subscriber for a large car rental company. The profit derived from each subscriber over the course of three years is $265.59. It's an impressive figure given that 77.8 percent of promotional e-mails are unopened, and is helped greatly by the fact that 64.7 percent of rentals via phone and walk-in are the result of e-mail promotions.
I Know Lifetime Value, Now What?
For this car rental company, it's easy to decide how much to spend on acquisition strategies. At a value of more than $265 per subscriber, the answer is "as much as you want." But what if your subscriber lifetime value is $40? Or less than $10? Or even as little as 50 cents? Let's look at some suggestions for improving subscriber acquisition based on lifetime value. For every marketer, there is room for improvement.
Hitting the Email Inbox
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