Return on investment
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ROI is a simple comparison of the increase in profits attributable to the newsletter (if any) with the costs associated with producing that newsletter.
If the newsletter is solely designed to produce advertising or affiliate income, then the calculation is a relatively simple one. You can just compare newsletter costs with these direct newsletter revenues.
The huge problem is where the newsletter is supporting on- and offline sales or products and services. How can you measure the profits attributable to a newsletter whose benefits and objectives are usually long-term and unquantifiable?
If you just focus on the short-term benefits arising from clickthroughs, then you can calculate a short-term ROI. This is no different to calculating the ROI for email promotions. How much profit did you make from the immediate actions taken by the recipients of each newsletter issue and how much did it cost to produce and deliver that issue?
But what about this crucial long-term element? Peter Meyer addressed this issue in his article entitled, ROI for e-newsletters: the real story. He suggests you calculate the long-term ROI by comparing the revenues produced by subscribers to the revenues produced by non-subscribers, over a suitably long period of time, and taking into account the costs of the newsletter.
The only problem there is that those people interested enough to want your newsletter may have been likely to spend more money with you anyway.
I prefer a more complicated calculation which follows the change in revenues from customers before and after they subscribe to your newsletter.
To make this calculation you need pretty detailed information about your customers...
Find pairs of customers. Both customers in a pair must have first bought from you at roughly the same time. One customer must never have subscribed to your newsletter. One must have subscribed some time during the course of their association with your business.
For each customer in the pair, calculate the net profit generated from purchases by each during the time when neither got your newsletter and during the time when one of them was subscribed.
For example:
Customer A: First purchase was Jan 1st 2001, subscribed to the newsletter July 1st 2001. Between Jan 1st and July 1st he bought $500 of goods from you, where your profit was $250. between July 1st and Dec 30th, he bought $1000 of goods, where your profit was $500.
Customer B: First purchase was Jan 1st 2001, he never subscribed to the newsletter. Between Jan 1st and July 1st he bought $800 of goods from you, where your profit was $400. Between July 1st and Dec 30th, he bought $1200 of goods, where your profit was $600.
Our assumption is that if customer A hadn't subscribed to your newsletter, his purchase pattern would have mirrored customer B. He'd have bought 50% more goods than in the first half of the year, i.e. $750, at a profit to you of $375.
But he actually generated a profit of $500. So we can say that the newsletter accounted for an additional $125 dollars of profit.
Now we calculate a newsletter cost for customer A, which we get by summing the cost of subscriber acquisition and the per-subscriber costs of producing that newsletter over the period the customer was subscribed (we can use averages). Let's say we get a total cost of $50.
If we compare the two figures, we get a net profit of $75 or an ROI of 150%.
If you do the same calculation for a large enough number of customer pairs, you'll eliminate statistical bias, and get some sort of acceptable average ROI for the newsletter as a whole.
Nevertheless, the calculation still doesn't account for all the long-term benefits of your newsletter (such as referrals, fewer complaints to customer service, etc.).
So in reality, you may not find it possible to calculate even a rough ROI for your newsletter.
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