What is the value of a winery email?

Do you know how to calculate the $ value of an email?

Let YOUR data be the guide…

I have always been fascinated by human behavior pertaining to email, particularly regarding the field of “behavioral economics”. A well-known past economics professor of mine, Richard Thaler, currently a University of Chicago professor and economist, has written numerous books about this subject. The themes are essentially based on the fact that conventional economics assumes that people are highly-rational – super-rational – and unemotional. They can calculate like a computer and have no self-control problems.

But we know that’s not the case, which is why it’s a fun subject. Now about those emails. I have done a number of webinar surveys over the past two years of winery DTC professionals and posed the question: what is the value of an incremental email to you?

Do You Know The Answer?

The answers have generally fallen in the following ranges:

  1. Less than $1.00 – 5%
  2. $1.00  – $5.00  –   10%
  3. $5.00 – $10.00 –  20%
  4. $10.00 – $15.00 –   40%
  5. Greater than $15.00 –  25%

These surveys were administered to different winery groups over a two-year period, and while not completely scientific with respect to research survey methodology, they clearly tell a story. Everyone surveyed believed emails had an economic value and, in most cases, a value that was in excess of $5.00, if not $15.00. Why then, is it so common for wineries to reward their tasting room staff with incentives to sign up wine club members, but not for capturing email addresses?  And when they do provide incentives, why are they frequently only $1.00 or less per email captured?

Professor Thaler would call this “quasi rational economics“.

Why This Matters

What do Macy’s, Best Buy, the Gap, and hundreds of other bricks & mortar and online retailers know that wineries don’t in regards to the costs and ROI of customer email acquisition and email marketing?

 Direct Marketing Association 2016

 Direct Marketing Association 2016

As the chart above shows, these retailers and marketers across all industries know that email is the best performing marketing channel compared to all others, and is essential for building consumer direct sales.

The Equation

The equation is formulated by gaining access to a few stats that are often hard to accurately quantify:  

  1. The cost of acquiring an email subscriber; and
  2. The potential return on cost (ROI) of an email subscriber,  based on Lifetime Value(LTV)

In the case of wineries with an established presence with physical infrastructure, staff in place, and CRM and IT  systems already embedded as fixed costs, it’s helpful to start with the marginal cost analysis. ie. What does it actually cost to acquire the next email subscriber and send them a marketing offer?  This depends on how emails are acquired, which could include any of the following sources:

*Cost of incentives paid to staff to harvest emails

*Cost of incentives paid to staff to harvest emails

A marginal cost analysis would not include the cost of the tasting room facilities, overhead, and staff, unless an incentive was paid to associates(we’ll get to this later) to solicit newsletter signups in the tasting room. The same is true for other winery events and off premise events, and online signups on the winery’s website.  However, contests, social media promoted posts, paid search (PPC), affiliate marketing and other digital advertising driving email acquisition will all likely have a specific performance based cost associated with a “click” which hopefully translates to a “conversion”, or data capture.  One can quibble over whether the cost of marketing staff or agency time required to produce emails as well as the email platform costs should be included as well, but it’s easier to start with the question of what that next incremental email costs to acquire and market to.

Beauty is in the Eye of the Beholder.

So what about the ROI on all this?  I know that not all emails are created equal, nor are the wines produced by the wineries sending the emails. I created what I call a Lifetime Value Coefficient to distinguish the loyalty and response rates to be expected from different email acquisition sources. Starting with the best case of on premise acquisition at the winery (1.0), it decreases based on where the conversions take place (down to .40). This may vary by winery brand and success of outreach, but in any case it should affect how much to spend on driving email acquisitions though the different channels.

The good news is that you already probably have enough data to start figuring all this out.

Let’s start with your last 12 months of data on marketing emails you have sent to your existing customers.  If you can, it’s best to segment your wine club member marketing data from the rest of your subscriber lists.  Opening rates for winery emails tend to perform better than the national all industry averages of 16 – 20% (MailChimp Sept 2016) due to the high consumer interest level and post-visit loyalty.  In my experience, it typically ranges from 30 – 50% for a clean, deduped and updated list, and sometimes even higher.

Next you need to look at how effective your email content engagement was as measured by your click-to-open (CTO) rates, which is the % clicks you got from those that opened the emails.  Across all industries for ecommerce and retail, this % ranges from 10 -15% (Smart Insights April 2016). Now for the fun part – how many orders did you get, and what conversion rate did you achieve as measured by the % of subscribers who bought vs. the number that clicked on the offer?  Likely 2 – 10%, which is the range for all industry ecommerce and retail (Hubspot 2016). And, what was your average order size from all campaigns?

So let’s do the math:

  • Let’s say you sent 12 marketing emails in the past year to your subscriber list of an average 1,000 members during the year.
  • That’s 24,000 emails sent, and you had an opening rate of 30%, or 7,200 emails opened.
  • Your CTO calculated out to be 20% of 7,200 emails, or 1,440 unique clicks.
  • You ended up with a 5% conversion rate, which resulted in 72 orders totaling $14,400, or an average order size of $200(exclusive of shipping & tax).
  • Your net revenue for the year was therefore $14,400/2,000 emails, or $7.20 per email subscriber.
  • Assuming an average 3 year tenure for an email subscriber (LTV), the net revenue jumps to $21.60.

So, back to the question of what is the marginal cost of acquiring an email subscriber and what’s it worth.  If your data tells you that over 3 years, you generated on average $21.60 from an email subscriber, what can you afford to pay your staff in incentives, or pay for social marketing, paid search(PPC), contests, or referrals going forward (adjusting for Lifetime Value Coefficients)?  And what special offers, discounts or otherwise, are you prepared to give to encourage visitors to your tasting room and website to sign up for your newsletters, email offers, etc. in order get their email addresses?

The math should be clear based on your existing historical data.

And now imagine if you upgraded your email marketing tool kit for email delivery, improved your website CRM, enhanced your email content, implemented A-B testing of subject line, promo offers, and content, and segmented your member lists to target your customers with the most relevant of offers……..The sky’s the limit.

You Can Have Two Birds, Not One

Let’s return to my earlier comment about wineries giving incentives for wine club signups, but not solely for email acquisitions.  Why are these two options mutually exclusive? Why shouldn’t tasting room staff and signage be prominent to drive customer email acquisition as well as wine club signups, and why shouldn’t there be meaningful incentives given to visitors and staff to drive data acquisition?

Do the math – The truth is self-evident

One of the best parts of my job is helping a wide range of wineries gain insights on ways to constantly improve a local ecosystem that I love dearly. I openly invite your thoughts, insights, and conversations on this blog or in person.