Measuring and optimizing the costs of email marketing campaigns is a critical component of running successful programs that drive ROI. This guide dives deep into advanced methods for calculating key email cost metrics, providing step-by-step instructions, worked examples, and industry best practices. Whether you're new to email marketing or a seasoned pro, the information here will help you effectively track costs, identify optimization opportunities, and maximize the value of every email sent.
Understanding Email Cost Components
Before diving into calculations, it's important to understand the various cost components that make up an email campaign:
- ESP costs - Fees paid to your email service provider for sending emails, often based on volume
- Design/development - Costs for creating email templates, graphics, and interactive elements
- List acquisition - Expenses related to growing your subscriber list through ads, content, etc.
- Personnel - Salaries or contractor fees for strategists, designers, and other email team members
Here is a hypothetical breakdown of monthly email costs, for illustration only (your own split will differ):
| Cost Component | Monthly Spend | % of Total |
|---|---|---|
| ESP | $2,500 | 50% |
| Design/Dev | $1,000 | 20% |
| List Acquisition | $1,000 | 20% |
| Personnel | $500 | 10% |
| Total | $5,000 | 100% |
Calculating Cost Per Send (CPS)
Cost per send (CPS) is the most basic email cost metric, representing the total cost to deploy a single email campaign. Here's how to calculate it:
Total Email Costs / Number of Emails Sent = Cost Per Send
For example, if your total costs for an email campaign are $500 and you sent the email to 10,000 subscribers, your cost per send would be:
$500 / 10,000 = $0.05 per send
Tracking CPS over time helps you understand changes in email costs and sending volume. A rising CPS may indicate you need to optimize your campaigns or look for cheaper deployment options.
Benchmarking Cost Per Send
Published cost benchmarks vary widely and depend on what each company counts as a cost, so your own trend over time is the most useful comparison. Track CPS month by month and investigate sudden changes.
Measuring Cost Per Open (CPO)
Cost per open takes CPS a step further by measuring the cost for each recipient who actually opens your email. This metric provides insight into the true cost of reaching engaged subscribers.
Total Email Costs / Number of Opens = Cost Per Open
Let's extend our earlier example. If the email campaign that cost $500 to send to 10,000 people received 2,000 opens, the CPO would be:
$500 / 2,000 = $0.25 per open
Open counts are inflated by privacy features such as Apple Mail Privacy Protection, which preloads images, so treat CPO as a rough guide and lean on cost per click and cost per conversion for decisions.
If your CPO is high, look for ways to improve your open rates through better targeting, subject lines, and send time optimization. Even small gains in engagement can significantly reduce costs.
The following diagram shows the relationship between CPS, CPO and key engagement metrics:
Calculating Cost Per Click (CPC)
Cost per click is a key indicator of the ROI of your email campaigns, as it measures the cost of driving a recipient to your desired conversion action, such as visiting a landing page. To measure the cost of purchases or sign-ups, divide total costs by the number of conversions instead (cost per conversion).
Total Email Costs / Number of Clicks = Cost Per Click
Continuing our example, if the $500 campaign generated 500 clicks, the CPC would be:
$500 / 500 = $1.00 per click
If your CPC is rising or higher than you expect, look for ways to make your emails more compelling and drive higher click-through rates. This could include:
- Optimizing your calls-to-action
- Segmenting campaigns to better match subscriber interests
- A/B testing email content and offers
CPC vs Other Channels
One of the key benefits of email marketing is driving low-cost conversions compared to other channels, because you are not paying for each click as you do with paid search, display or social ads. To compare fairly, include all of email's costs (platform, design, list growth and staff time), not just sending fees.
Determining Email ROI
The ultimate measure of email marketing success is return on investment - how much incremental revenue is driven for each dollar spent. Email ROI is calculated as:
(Revenue Attributed to Email - Email Marketing Costs) / Email Marketing Costs
For example, if an email campaign generated $10,000 in sales and cost $2,000 to deploy, the ROI would be:
($10,000 - $2,000) / $2,000 = 400%
In other words, for every dollar invested in this email campaign, the company generated $5 in revenue, or $4 of return after covering the cost.
Email marketing is widely reported to have one of the highest ROIs of any channel, but reported figures depend heavily on how revenue is attributed, so measure your own.
Improving Email ROI
To maximize email marketing ROI, focus on two key areas:
- Reducing costs through efficiencies like automation, template reuse, and competitive ESP pricing
- Driving incremental revenue with advanced segmentation, personalization, and trigger-based campaigns
- Implement automated email flows for common journeys like welcome series, abandoned carts, and post-purchase
- Create reusable templates and modules to reduce design/development time
- Eliminate underperforming campaigns and focus on highest-ROI programs
- Negotiate lower rates or discounts with your ESP based on volume
- Leverage dynamic content to personalize emails based on individual user behaviors and attributes
- Set up triggered campaigns for high-value actions like browsing key pages or adding items to a cart
- Create targeted segments to align email content with specific subscriber preferences and lifecycle stages
- A/B test everything from subject lines to offers to continually optimize performance over time
Bringing It All Together: An Email Cost Optimization Roadmap
With a solid grasp of key email cost and ROI metrics, you can develop a systematic approach to improving performance. Here's a sample roadmap:
1. Baseline Current Performance
Compile key email metrics like CPS, CPO, CPC and ROI to establish a baseline and identify high-potential optimization areas.
2. Conduct a Cost Audit
Analyze email cost components in detail, reviewing ESP contract terms, design/dev expenses, personnel costs and list acquisition. Look for quick wins to reduce costs.
3. Identify Revenue-Driving Opportunities
Review email segmentation, personalization and automation approaches for improvement areas. Prioritize highest-potential campaigns to drive more conversions and revenue.
4. Run Tests & Measure Impact
Develop a testing roadmap to trial new cost optimization and revenue-driving tactics. Carefully measure results and double down on winning approaches.
5. Monitor & Iterate
Continue monitoring core email cost/ROI metrics, watching for changing trends. Review costs at least quarterly and whenever your ESP contract, list size or sending volume changes.
Conclusion
Cost per send, cost per open, cost per click and ROI each show a different side of what your email program costs and returns. Calculate them the same way every time, include all cost components, and compare against your own history rather than generic benchmarks. Remember that deliverability affects every one of these metrics: email that lands in spam still costs money to send, so keep authentication, list hygiene and spam scores in good shape.