In this post we explore a common method for calculating your lifetime value (LTV) of your email subscriber base. A valuable metric when looking to improve the revenue from email campaigns.
How much is my email list worth? This is a common question, with too many answers. At New North, we are frequently asked to look at customer databases to evaluate the strength of customers for retention purposes, and Lifetime Value (LTV) is something we commonly find missing from the customer data. Knowing the LTV of your customers can dramatically affect how you approach your customers and your marketing and retention efforts.
Calculating Lifetime Value
The first step is to gather the data to make some calculations to understand your investments, costs, and outcomes (revenue) from your email marketing efforts. In the table below we lay out a common case scenario. The lifetime we are looking at in this equation is three years. Why three years? Three years is a realistic time frame in which to base economic outcomes. Expecting every customer to last 10 years would be great, but would create outrageous revenue projections that would not be sound from a forecasting perspective.
|Value||Current Year||Next Year||Third Year|
|End of Year Subscribers||849745||722283||613941|
|Opens % (12.5%)||11684117||9931391||8441689|
|Unique Clicks (15.9%)||1857775||1579091||1342228|
|Sales Per Click (1.9%)||35298||30004||25502|
|Off Email Multiplier (1.5)||52947||45004||38253|
|Email costs (3.00 CPM)||$280,419||$238,353||$202,600|
|Net Present Value||$5,896,681||$4,556,551||$3,704,565|
|Cumulative Net Present Value||$5,896,681||$10,453,232||$14,157,797|
|Email Subscriber Value||$5.90||$10.45||$14.16|
Off-Email Multiplier, Discount Rate, and Net Present Value
These three items are some critical numbers that affect the true value of your subscribers. The off-email multiplier is the ratio in which a sale happens outside of an email, that was influenced by an email. So for example, you might send an email that equates to an in-store purchase. This attribution is common and there are many ways to determine this value for your company using your historical data records, but our number is generalized. Discount rate is the rate in which your money matures, and helps account for the “bird in the hand” idea of capital investment. And lastly, the Net Present Value is the cumulative value of your customers today, two, or three years into the future using the previous collected calculations.
The Power of Database Marketing
This equation is a great example of how to look at the macro scope of your email programs and get an idea of the value of your list. It will also help you to see your email marketing from a monetary perspective and allow for budgeting for improvements to your programs. Much of this database strategy comes from Strategic Database Marketing 4e, by Arthur Hughes and is a wonderful resource to further explore these calculations against you own email lists.