House Lists Generate Best E-Mail ROI

E-mail marketing campaigns – especially those directed to existing customers – produce dramatically better return on investment (ROI) than any other direct marketing technique according to a study the Direct Marketing Association (DMA) released at its annual conference.

Using an index in which 2 represented profitability, email came in at a 14.2 ROI. The next-closest direct marketing medium, direct response TV, generated ROI of just 8.4. Direct mail came in at 7.2. DMA researchers calculated ROI by looking at revenue per contact; cost per customer; and response rate on over 1,500 direct and interactive marketing campaigns conducted in the first quarter of 2003.

Among email campaigns, those targeted to companies’ house files performed dramatically better than those intended to prospect for new customers. In the catalog industry, ROI for house lists came in at a staggering 29 on the index. Prospecting files only generated 4.9 ROI. The DMA declined to release details about other industries.

The organization said prospecting seems to be a comparatively small part of the industry. Eighty percent of campaigns are sent to house lists. Most prospecting campaigns were sent to business-to-business lists. The DMA didn’t say how names for prospecting campaigns were gathered, nor did it specify permission levels for these lists, i.e. whether they were opt-in, double-opt-in, or opt-out.

The largest factor in email’s stellar cost-effectiveness, according to DMA VP of information and special projects Ann Zeller, was its low cost. E-mail campaigns cost an average of $0.09 per contact, while direct mail cost $0.55 per contact. Only free standing inserts, at $0.06 per contact, were cheaper than email, but they also had a much lower response rate.

“It’s cheap, and it’s immediate,” said Zeller, adding that it’s also not as intrusive as, say, telemarketing.

The results did seem to indicate, however, that email marketers were being careful with their lists. The average email list was 20 to 30 percent smaller than the average direct mail list.

“This sort of tells us the story that the industry is starting to regulate itself,” said Zeller, describing the email campaigns as “targeted”.

Another factor contributing to this statistic might be the difficulty traditional marketers have in obtaining email names, Zeller said.

E-mail marketing has become quite pervasive across the 23 industry categories covered by the study. All of the industries, except real estate, are using email in their direct marketing mix. Some did better than others in generating a response via email. Wholesale trade led with a 3.83 percent response rate. Manufacturing came in at 3.39 percent rate; retail stores generated a 2.71 percent rate; communications had a 2.65 percent rate; and health services had a 2.29 percent rate. The researchers noted that the industries with the best response rates tended to be in the business-to-business sector.

“Everybody is using it. I don’t think they can afford not to,” said Zeller. “If direct marketers continue to be cautious and use it appropriately, email is probably going to be a very important medium for the future.”