‘How much should I spend on a new customer and how much will the customer return back to me?’ a question, which often troubles a plethora of email marketers across the globe. The answer to the question lies in knowing the worth of the email subscriber. The worth of a subscriber also known as customer lifetime value. Here, the lifetime value of the customer is not taken into account, instead the lifetime of the email subscription is considered and the impact it created during that time.
How is the calculation done?
Calculating the ROI is easier when compared to calculating the customer lifetime value. For the results to be accurate and genuine, purchase history of the customer or the subscriber is required. However, this data is not easily available because of its complexity. The following three numbers are sufficient to calculate the lifetime value.
1) The number of active subscriptions.
2) The profit generated by email marketing
3) The average lifetime of the address
Profits for the past 12 months are required and remember to exclude all non-marketing related revenue. An intelligent financial system will help you acquire the data easily. The next step is segregating the data into and understanding the portion of revenue generated from email marketing. Combine the profits with the contribution of email marketing calculated above and you will have the profits generated by the email marketing campaign. You need to consider the profits and not revenue.
Calculate the number of active subscribers only because these customers only generate revenue for the business.
Lastly, find the subscription date for the customer and the date or time when the customer became inactive. The active customers along with the numbers found above gives the average lifetime of the email address.
The final calculation
Divide the total profits by the number of active subscribers you had in the past 12 months. This will give you an indication of what an active subscriber is likely to contribute in the upcoming year.
For the final calculation, multiply the average lifetime of an email address with the profits generated from the active subscribers.