How much should you budget for Email Marketing?

The following steps will guide you through the process of determining your email marketing budget for this year.

Summary

As you plan for the new year, it’s essential to allocate an appropriate budget for your email marketing efforts.

Following these steps will help you determine how much to invest:

Set clear email marketing goals. More ambitious goals require a larger budget.
Calculate the average revenue per email lead (ARPL) and customer lifetime value (CLTV) to gauge the potential return from acquiring new subscribers.
Decide what percentage you want your email list to grow annually and how many new subscribers that translates to.
Estimate subscriber acquisition costs.
Account for operational costs.
Finalize your total budget.

With a data-driven approach, you can calculate the investment required to power an effective email marketing strategy.

However, your actual costs may vary depending on your specific needs and chosen strategies.

As a new year begins, it’s crucial for your business to understand how much to invest in email marketing efforts to achieve your sales goals.

A solid budget sets a clear direction for your email marketing initiatives. It shows how much you can spend on building your email list, sending campaigns, and what kind of results you can expect.

The following steps will guide you through determining your email marketing budget for this year.

Step 1: Set your goals

What do you want your email marketing to achieve?

This is the critical first step because it sets the direction for your entire email marketing strategy and ultimately determines how you’ll allocate your budget.

Here are some common goals:

Increase sales: Aim to generate a specific amount of revenue directly through email campaigns.
Boost customer engagement: Focus on improving open rates, click-through rates, or driving repeat purchases.
Expand your subscriber base: Set a target percentage for annual growth in your email list.
Increase event attendance: Focus on driving registrations for webinars, workshops, or conferences you host.

Let’s say you’re a non-profit organization that provides online educational resources for aspiring musicians. You want to increase webinar attendance by 30% this year and boost newsletter engagement (open rates and click-through rates) by 10%.

By clearly defining these goals, you can tailor your email content, design, and sending frequency to achieve the desired outcomes.

The more ambitious your goals, the more budget you’ll likely need to allocate to attract new subscribers, create high-quality content, or leverage marketing automation tools.

Step 2: Understand your subscriber value

Subscriber value refers to the overall worth of a subscriber to your business.

It’s not just about the immediate revenue they might generate from a single purchase, but the total potential revenue and engagement they bring throughout their relationship with your brand.

Knowing this value is crucial because it helps you determine:

Return on Investment (ROI): How much revenue each subscriber generates on average allows you to assess the financial viability of acquiring new subscribers.
Resource Allocation: This metric guides how much you can invest in attracting new subscribers. If your subscribers have a high value, you might be justified in spending more on lead magnets, advertising, or design to acquire them.

Here are two key metrics to consider:

Average Revenue per Email Lead (ARPL): This metric represents the average revenue generated by a lead acquired through email marketing. You can calculate it by dividing your total annual revenue from email-generated leads by the number of leads acquired through email marketing efforts.

Note: If you’re just starting out, you can estimate ARPL based on your average client value and email campaign click-through rates to projected sales.

Customer Lifetime Value (CLTV) of email subscribers: This metric estimates the total revenue a subscriber generates over their entire relationship with your business. It typically considers factors beyond just email marketing but provides a broader picture of subscriber worth.

Let’s say you’re a consulting firm with an average project value of $2,000.

Your click-through rate for email campaigns promoting free consultations is 3%, and you estimate a 10% conversion rate for those who book consultations.

With 500 subscribers, your projected annual revenue from email-generated leads would be $3,000 (500 subscribers * 3% click-through rate * 10% conversion rate * $2,000 average project value).

This translates to an initial ARPL estimate of $6 (total email-generated revenue / number of leads acquired through email).

Step 3: Set your desired Email List Growth rate

This step is crucial because it helps you determine how many new subscribers you need to acquire to achieve your goals. Here’s why:

Audience Reach: Growing your list expands the reach of your email campaigns, potentially leading to more leads, sales, or event registrations.
Campaign Performance: A larger, engaged subscriber base can improve your email campaign performance metrics like open rates and click-through rates.

Here are two key metrics to consider:

Current Subscriber Base: This is your starting point for growth.
Industry Benchmarks: Research average email list growth rates within your industry to set a realistic target.
Overall Marketing Strategy: Align your list growth goals with your broader marketing objectives.

Once you have a target growth rate, you can calculate the number of new subscribers needed annually.

Suppose you currently have 500 subscribers and aim for a 30% annual growth rate. You’d need to acquire 150 new subscribers per year (500 subscribers * 30% growth rate).

Step 4: Calculate Subscriber Acquisition Costs

After establishing your email marketing goals and subscriber value, it’s time to delve into the financial side of things.

Attracting new subscribers is an investment, and understanding the associated costs is critical because it helps you determine:

Budget Allocation: This metric guides how much you should invest in attracting new subscribers relative to other email marketing expenses.
Return on Investment (ROI): By comparing your subscriber acquisition cost to your ARPL (average revenue per lead), you can assess the efficiency of your acquisition strategies. The goal is to acquire subscribers at a cost that allows you to generate a profitable return.

Here are some key areas to factor into subscriber acquisition costs:

Lead Magnets and Opt-in Incentives: Costs associated with creating valuable content or offers to entice signups (e.g., free ebooks, webinars, checklists).
Advertising/Promotion Costs: Budget for advertising campaigns to promote the lead magnets/incentives and drive new subscribers (optional).

Let’s say you plan to create a free downloadable guide on “5 Social Media Mistakes Businesses Make” as a lead magnet and estimate the cost of design and content creation to be $300.

You also plan to allocate $100 per month for social media advertising to promote your email signup form.

This would result in an estimated cost of ($300 + $100/month * 12 months) = $1,500 per year for subscriber acquisition.

On top of subscriber acquisition, consider ongoing operational and ownership costs.

These may include:

Email service provider (ESP) fees: Subscription fees for the platform you use to manage your email list and send campaigns, e.g Mailchimp.
Email design/development costs: Costs associated with creating professional email content (optional).
Marketing automation tools: Costs for software that automates email workflows and personalized messages (optional).
Analytics tools: Investment in tools to track and analyze email campaign performance.
Agency fees (if applicable): Costs associated with outsourcing your email marketing.

In our scenario, let’s assume you use a basic email service provider (ESP) with a monthly fee of $29 and invest in an analytics tool for $19 per month. You decide to handle email design in-house for now, so you’ll not pay agency fees.

Step 5: Finalize Your Budget

After outlining your goals, subscriber value, and list growth targets, it’s time to translate those considerations into a concrete budget.

Here’s how to approach this crucial step:

Add Up All Costs: Consolidate the costs associated with subscriber acquisition (lead magnets, advertising) and ongoing operations (ESP fees, analytics tools, optional design or automation features).
Prioritize Based on ROI: While some expenses like ESP fees are essential, others might be optional. Adjust your budget allocation based on which strategies contribute most to your overall marketing goals and desired return on investment (ROI).

Continuing with our previous example, here’s a breakdown of the estimated annual budget:

Subscriber acquisition: $1,500 (lead magnet + social media ads)
ESP fees: $29/month * 12 months = $348
Analytics tool: $19/month * 12 months = $228

Total annual cost: $1,500 + $348 + $228 = $2,076

It’s wise to begin with a conservative budget, especially if you’re new to email marketing.

As you gain experience, track the performance of your campaigns and adjust your budget accordingly.

By demonstrating the effectiveness of your email marketing efforts, you can make a strong case for increased investment and scale up your budget for even greater results.

Conclusion

Remember, this is a simplified example. Your actual costs may vary depending on your specific needs and chosen strategies.

Here are some additional factors to consider:

Industry benchmarks: Research average email marketing costs within your industry to get a broader sense of budgeting expectations.
Email marketing platform features: Different ESPs offer varying features. Free plans might have limitations, while advanced plans with features like marketing automation may come at a higher cost. Choose a plan that aligns with your current needs and growth projections.
Email design complexity: If you plan on creating highly designed emails with complex layouts or animations, factor in potential design or development costs.

Crafting an effective email marketing budget requires careful consideration of your goals, resources, and target audience.

If you’d like more personalized guidance on developing your email marketing strategy and budget, our email marketing agency is here to help. We offer consultations to assess your specific needs and recommend data-driven strategies to maximize your return on investment.

Contact us today to schedule a free consultation and discuss how we can help you craft a winning email marketing strategy!

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