Email marketing is an investment. It historically has a very strong return on investment (ROI)—between $38 to $44 for every $1 spend, according to two major studies—but there are still costs associated.
While ROI is an important calculation for figuring out how much of your resources you should be putting into email marketing, subscriber value is in the same arena—and carries its own importance as well. Subscriber value lets you know how much the average subscriber is worth and, therefore, how much of your resources you should put into acquiring and retaining them.
We’re going to discuss three different metrics in this lesson: The cost of acquiring a subscriber, the value of a subscriber over a short or specific time period, and the lifetime value of a subscriber. These stats will give you an even better picture of how your email marketing is performing and how much of an investment you should put behind it.
You may not be spending much of anything to acquire subscribers. They may all be signing up when making a purchase, or via a form on your website. But you also may be spending money to build your list, through avenues such as:
- Advertising on Facebook, Google, or other websites.
- Producing lead magnets like eBooks and courses.
- Running contests or giveaways to get subscribers.
- Hosting online or live events.
- Paying for apps that help with email subscriber acquisition.
How to calculate subscriber acquisition cost
monthly spend on subscriber acquisition / number of new subscribers
We suggest calculating this statistic monthly because it gives you a good time frame to work with—it’s long enough that you get a pretty accurate picture, but short enough that you can make adjustments and tweaks, and run experiments as necessary.
You could also calculate this metric by looking at a specific source or campaign. That can be helpful to figure out if a new subscriber acquisition channel is worth it. For example, if you spend money to sponsor a local meetup and you want to know if that was worth it from a new subscriber standpoint, you can calculate your subscriber acquisition cost to figure out how much it cost to generate each subscriber from the event using the following formula.
spend on subscriber acquisition from a specific source / number of new subscribers from that source
What’s a good subscriber acquisition cost?
A good subscriber acquisition cost is one that’s lower than your subscriber value, which we’ll calculate next. Even if it’s costing you $25 to get one subscriber, if they bring in an average of $30, then they’re worth it.
A good subscriber acquisition cost is one that’s lower than your subscriber value … even if it’s costing you $25 to get one subscriber, if they bring in an average of $30, then they’re worth it.
You also should try to get as many free subscribers as possible. Check out our lessons on incentivizing people to join your list for a plethora of techniques you can use to bring in more subscribers without having to pay for them—which will lower your average subscriber acquisition cost dramatically.
With this metric, we’re calculating the revenue generated by each subscriber in a given time frame. We’ll get into the lifetime value of a subscriber next, and that’s a valuable stat, too—in fact, overall, it’s probably more valuable than this one. However, there is a benefit in calculating the value of a subscriber over a more limited time frame. It’s easier to figure out, it’s something newer stores without years of data can calculate, and it can help you diagnose problematic trends in your email marketing early so you can adjust.
How to calculate subscriber value over a limited time frame
revenue generated by email list over the time frame / total number of subscribers in that time frame
You may also want to calculate your subscriber value based on profit, not just revenue, which can give you an even clearer look at just how valuable your subscribers are.
profit generated by email list over the time frame / total number of subscribers in that time frame
What’s a good subscriber value?
There’s no single number that marks a “good” or “bad” subscriber value; it’s all based on your individual email marketing numbers. A good subscriber value for you is one that’s more than your subscriber acquisition cost. A great subscriber value for you is one that’s way, way more than your subscriber acquisition cost.
As we said in the intro of this section, you can draw some valuable conclusions by examining your subscriber value over a limited time frame.
It’s much easier to calculate than subscriber lifetime value (as you’ll see in the next section)—you just need your revenue or profit numbers and your subscriber numbers. It’s also something a newer store can calculate; lifetime subscriber value takes a longer history of data, especially if you want to start looking for year-over-year trends.
And on that point, calculating your monthly subscriber value can also show you trends popping up in your email marketing. Is the value decreasing? That could mean your emails aren’t as effective, your list needs a cleaning, or both. Is the value increasing? It means whatever you’ve been doing is working, so figure out what’s been different recently and don’t revert to the old ways. Just watch out for noise due to large sales or seasonal trends.
The lifetime value of an email subscriber is a metric that, eventually, you’ll need to know, as it tells you what you can expect each subscriber to bring in during their time on your list. This is the number that will help you set your subscriber acquisition budget and contribute toward your revenue projections.
Subscriber lifetime value is calculated in a similar manner as customer lifetime value. But since we’re focusing on email marketing, instead of customers and all revenue, we’re only going to look at subscribers and email-attributable revenue.
How to calculate subscriber lifetime value
average email-attributable purchase value * average email-attributable purchase frequency rate * average subscriber lifespan
Each of those three component numbers require a formula of their own (we did say this was more complicated than calculating subscriber value over a limited time frame, after all).
average email-attributable purchase value = total email-attributable revenue in a year / total number of email-attributable purchases in a year
This first part of the formula looks at how much the average person spends after clicking through an email to make a purchase. So, for example, if you made $10,000 in a year on email-attributable purchases from 1,000 orders, your average email-attributable purchase value is $10.
average email-attributable purchase frequency rate = total number of email-attributable purchases in a year / unique subscribers making those purchases
The second part of the formula figures out how many purchases each subscriber was making. If you had 5,000 people on your list over the course of the year, and they made 1,000 purchases, your rate is 0.2.
average subscriber lifespan = sum of the (current year - each subscriber's signup year) / total subscribers
To calculate the average subscriber lifespan, it will probably require dumping your current subscribers into a spreadsheet, along with the year they signed up. Add up how long everyone’s been on your list, then divide that by the number of subscribers to get the average lifespan.
(Note: This will only work once you have a large population of subscribers, which is why this isn’t something stores can calculate right away. If you only have 100 subscribers, and suddenly you grow to 10,000 in one month, your average subscriber lifespan will be highly skewed. But over a longer timespan, and across a less volatile number of subscribers, you’ll be able to see more accurate averages.)
So, when taken altogether, let’s say you found an average email-attributable purchase value of $10, an average email-attributable purchase frequency rate of 0.2, and an average subscriber lifespan is 2.5 years. Multiply it out, and the lifetime value of a subscriber is
10 * 0.2 * 2.5, or $5.
Now you know what you can afford to spend to acquire subscribers and what you can expect them to bring in. You can also calculate what kind of revenue gains you could expect if you get more aggressive in acquiring subscribers—and whether that’s a worthwhile endeavor.
As you’re determining your email budgets, it’s important to know how much it costs you to acquire a subscriber and how much value they bring in.
You can figure out your subscriber acquisition cost by adding up your spend on building your list (including things like ads, apps, and developing lead magnets). You want your cost to be lower than your subscriber value.
You can calculate your subscriber value over the lifetime of a customer, or over a more limited time frame. The lifetime value is a great metric to have, and can really guide your budget on acquisition and email marketing, however you’ll need a good history of data to figure it out. You can calculate the value over a limited time frame with less data, and also get an ongoing picture of the current effectiveness of your email marketing.
Step 1: Figure out your subscriber acquisition cost and monthly value
- Calculate your monthly acquisition cost, and commit to continuing to do so on an ongoing basis.
- Calculate your monthly subscriber value, and commit to continuing to do so on an ongoing basis.
- Compare those numbers, and make sure your acquisition cost is less than your subscriber value.
Step 2: Eventually calculate your subscriber lifetime value
- You need at least a year’s worth of data to calculate lifetime value.
- Continue to calculate annually, adjusting your budgets and expectations accordingly.