The 30% hype and why it is hurting your business
Email should generate 30% of total online revenue. But, should it really?
“If emails are not generating more than 30% of your online revenue, you are losing money!!!”
This claim, and variations of it, are all over social media.
It is, in fact, so ubiquitous, that most people just accept it.
Even marketers like me, who should know better. It took 3 years before I even thought to question this piece of E-com wisdom.
So, if it’s so wrong, why is everyone talking about it?
How did the mad chase for 30% even start?
And what is the benchmark I would recommend instead?
Lots of good questions. Let’s look at this step by step.
The Claim
The idea is simple enough. E-Commerce businesses should generate a certain share of email revenue from their email marketing. If they generate less that that, they are not optimized for growth, and leaving tons of money on the table.
Conveniently, if they are making more than that, this also shows a problem – one with their top-of-funnel performance.
So, according to this mindset, there is only a very small revenue share that is acceptable for E-Commerce business owners to have. Usually, that sits between 30% and 35% of total store revenue.
This is very good for agencies like mine, who can tell you in a very “data-driven” way that you have one problem or the other. Either way, there is always a big problem. And, where there is a big problem, paying someone to fix it is just good business.
Are you starting to feel like this picture seems a little too simplistic to represent the complex reality of an E-Com business with shifting market trends, seasons, and promotional schedules?
If you are, follow me down the rabbit-hole of generic benchmarks. We’ll look at the many reasons they are nonsensical at best and downright damaging at worst. And we’ll look at ways to set targets and evaluate performance that makes much more sense.
Seasonality
I’m about to write something that will surprise absolutely no-one in the E-Commerce space. Most businesses have seasonality effects. These apply whether we are talking about a swimwear brand selling more in the summer, a sports-focused brand selling more during major sporting events, or simply most brands wanting to capitalize on Black Friday madness with aggressive promotions.
Several things happen during different seasons.
First, customers behave differently. Purchase intent shifts, and so does the general attention of your audience. That is normal.
Secondly, business strategies shift. Ad spend gets adjusted, targets change, and this leads to a change in traffic to the site.
All these changes affect email quite strongly. Audiences will churn more and buy less when aggressively messaged in low seasons. Similarly, there is an abundance of fresh new profiles coming in during the high season, and less during the low season. This affects the list’s revenue potential.
Now, if we follow a generic 30% revenue share target year-long, we are assuming that these effects are always proportional. Meaning, we assume that email revenue will increase proportionally to ad revenue if we spend more on ads.
The problem with that is it just never happens that way.
Different channels react differently to these inputs. Measured over the course of several years, there tends to be a cycle in revenue share. It goes up in specific times of the year, and down in others.
These cycles don’t necessarily follow top-of-funnel decisions exactly. This is why revenue share fluctuates seasonally.
So, the first thing we should take away from all this is that our revenue share benchmarks should fluctuate depending on the season.
Growth stages
Here is another thing that bothers me about the 30% benchmark: It assumes one growth stage for every business.
Brands that are in a stage of fast growth, with hype around them, aggressive marketing, and equally aggressive offers, often have very high signup rates. Recent signups drive a large share of email campaign revenue, so this puts these brands in a good position to generate a strong revenue share from email.
It might be 30%, it might even be higher. We’ll get to where exactly the target should sit in a minute.
But the market is not made up entirely of fast-growth brands.
Let’s look at two extreme examples.
The first one is small niche brands.
These usually have a small email list of very engaged subscribers, and a small total addressable market. As a result, their ad budgets don’t tend to be super high. On the other hand, email revenue share tends to be much higher for brands like this, as email and SMS are better channels to communicate with passionate repeat buyers.
The second example is established brands.
Established brands often have less of a novelty factors and less hype around them, but there is usually a large pool of existing customers and a lot of trust. Offers tend to be less aggressive, and list growth is usually slower as there isn’t the same novelty effect as for many fast-growth brands.
As a result, revenue share tends to be a little lower.
So, the second thing we should take away is that our revenue share benchmarks should fluctuate depending on your business’s type and growth stage.
History
But aren’t we just accepting defeat if we set a lower target for an established business? Surely, we should push our marketing to outperform past performance.
Yes and no.
The last factor that matters a lot is what you have previously done with your email marketing. If you have lots of emails, but have been extremely aggressive for several years, there is most likely a high amount of fatigue. So, two businesses of equal size should aim for different revenue shares from email depending on their past behavior.
This is not accepting defeat. It is simply accepting reality, and avoiding further damage.
This is where things often go wrong, and why I am so against chasing generic targets.
Businesses who chase the 30% revenue share benchmark at all costs tend to oversend when they dip under it. In some circumstances, this is the worst thing to do.
It makes you more likely to land in promotion folders, thus reducing your revenue share even more, and fatigues your list much faster.
If we accept that, in some periods of the month, our revenue share will be lower because people simply don’t care about our products as much, we can switch to a healthy nurture strategy. This keeps us top-of-mind, keeps our list excited, and sets us up optimally for the high season.
Or, we can create a promotion to counter-balance the low season effect. In that case, we can aim for higher revenue share.
So, the last major factor in revenue share benchmarking is our own sending and promotional decisions, both past and future.
So, now that we have deconstructed everything, how do we make sense of this mess?
The answer to that is surprisingly simple.
Benchmarking
In my opinion, a benchmark can be accurate, or generic. Never both.
And now, we know that revenue share fluctuates naturally based on seasonality, growth stages, and your business’s past sending behavior.
We also know that chasing a target that is too high can lead to the exact opposite of your goal.
So, how should we approach benchmarking?
Luckily, you have a very accurate data pool at your fingertips: your own past data.
Here is our step-by-step guide:
- Define your seasons: Look at the last 3 years of operations (or the biggest period you can if you don’t have 3 years) and look at your revenue share’s trend. Define different seasons based on different revenue share levels.
- Set targets: Establish the benchmark’s average by season for your business. Set targets based on you past average by season and try to beat last years’ performance in the same season.
- Analyze results: If your revenue share is lower than last year, it may simply be because you had more aggressive promotions last year. This would be expected, and not an issue. If, however, you notice that it is due to a lack of conversion rate and overall lower purchase intent, you may have an issue with your list. Always dig one level deeper to understand why your revenue share was higher or lower than the previous year.
And, even if you don’t want to do any of that, the 30% revenue share benchmark causes more harm than good. At the end of the day, you can simply look at whether your email revenue was higher or lower than the same month last year. This is extremely easy to find out. And, if you break it out by campaigns and flows (equally easy) you will get a much more thorough understanding of where there is potential for improvement.
This is the age of data, and you have plenty of it. There is no reason to rely on random, generic metrics, over your own past performance. Trust your own data, and make your own benchmarks.
Data-driven email marketing is what I do, and I have looked at and analyzed a lot of benchmarks over the years. If you have any further questions on how to set your benchmarks, please feel free to reach out.