Email is great… but the cost is not free… and the true sales are typically a fraction of what people report them to be.

I recently had conversation with Alan Rimm-Kaufman of search marketing firm, Rimm-Kaufman Group, who made a remarkably bold statement: Return on investment (ROI) on email is highly over stated. He went on to back up his statements forcefully.

Today I read Ken Magill’s coverage of Datran’s new study putting eMail ROI in question. In reaction, Santhana Naidu quips that eMail’s positive ROI is “common sense.” Kinda like all forms of performance marketing are performance-based so they MUST have positive ROI (never mind various forms of fraud and other hidden market dynamics).

Are marketers catching on to what may be a bit of a ruse by many in the email business? Indeed, I believe they are.

Rimm-Kaufman says,

“When most people track email they say ‘who did we send email to, how much did they buy’… and they end up with sales per email that are huge and very low cost. Therefore, they say that house file email is their most profitable marketing channel by far.”

Sounded about right to me… until he pointed out that mailing to your best, most recent buyers (one’s house file) rarely yields incremental sales. I had to know more.

Rimm-Kaufman continued,

“Those folks would have bought anyway. Unless you’re measuring email against a holdout to find incremental-ity you’re going to be grossly over-reporting email. In fact, if you’re paying too much to your vendors (production, delivery, etc.) you may be actually be un-profitable in email. Email is great but the cost is not free and the true sales are typically a fraction of what people report them to be.”

While working with HSN, Jim Novo thought email was the best thing under the sun until he did a holdout study. In other words, he wanted to know who, out of those they were mailing to, would buy anyway — without having received the email.

HSN simply examined the cost of the email campaign and held it against the true, incremental sales (yielded from the study) over a period of time. Emailing the house list was regularly destroying value for HSN. ROI was often negative and at best break-even when taking the cost of the email and true incremental sales into consideration.

The news out of Datran:

• 55.3% of executives recently surveyed said e-mail’s ROI is higher than that of other channels
• 25.9% said e-mail’s ROI is roughly equal to that of other channels
• 18.8% said e-mail’s ROI is lower than that of other channels.

Says Naidu,

“These are fairly stunning numbers given e-mail’s low transmission costs. They also fly in the face of Direct Marketing Association calculations that e-mail delivered $48.56 in sales for every dollar spent in 2007, and would deliver $45.65 for every dollar spent in 2008.”

What does this suggest about the DMA’s understanding of email practices?

“You, Jeff, have put a lot of energy into debunking affiliate myths… I think email is due for a similar de-bunking in the next few years,” added Rimm-Kauffman. I blushed.

More fascinating discussions with Alan Rimm-Kaufman will be revealed in Paying for Performance — an forthcoming book I’m co-editing with Lee Gientke of Leadpoint.com.