Forecasting the ROI of Multichannel Marketing

Forecasting the ROI of Multichannel Marketing

With an effective methodology and research capabilities at your fingertips, it's possible to generate relatively accurate forecasts of multichannel marketing programs. This information can be invaluable when you are trying to  build a business case for channel expansion or in understanding how to maximize your return on investment (ROI) with the right channels. The methodology can be broken down to seven steps.

In this blog, we’ll go over each step in detail. For this exercise, we’ll focus on email and SMS as the two channels to forecast. Let’s dive in!

If you prefer to see the calculations in real time,  watch the webinar now and learn how to measure the performance and ROI of your multichannel communications 

How to calculate your ROI

Step 1: Forecast the volume of subscribers by channel. 

To estimate the volume of subscribers by channel, you should leverage relevant research and data. For example, Twilio SendGrid’s 2023 Global Messaging Engagement Report surveyed 4,800 consumers worldwide and highlighted key insights about preferred communication channels. Here’s what we found:

• Email 

  • 95% of people sign up for emails from businesses they like

  • 73% of those people will subscribe to email for marketing

  • 34% of marketing subscribers will opt-in for email but not SMS marketing

• SMS

  • 89% of people sign up for SMS from businesses they like

  • 59% of those people will subscribe to SMS for marketing

  • 13% of marketing subscribers will opt-in for SMS but not email marketing

These statistics can inform your initial volume estimates and can also provide a benchmark to strive for. As an example, if your subscriber results matched those statistics, then you’d expect the following distribution from a marketing solution that offered SMS and Email:

• 34% will only receive email marketing communications.

• 13% will only receive SMS marketing communications.

• 53 % will receive both email and SMS marketing communications.

Step 2: Estimate conversion rates by channel.

A conversion rate is the percentage of people that will take the desired action from your marketing campaign. For multichannel marketing, it is important to use a methodology that enables you to compare one channel to the other on an apples-to-apples basis. Therefore, it is recommended that you use an effective conversion rate (ECR), which is the ratio of conversions to the total number of subscribers in a campaign. 

Correct method: effective conversion rate = conversions / total subscribers in campaign 

For example, if you send communications to 1 million people and 2,400 convert, the ECR is calculated this way: 2,400 / 1,000,000 = 0.24%.

Conversely, sometimes marketers may use a different method for calculating conversion rates, such as basing it off of  "opens," or another starting metric. Make sure you are dividing by the number of total intended recipients.  

As a benchmark to get you started, consider using the following ECRs in your own calculations:

We know that SMS has a 0.24% effective conversion rate. Here's how we get to that ECR:

A. 98% of SMS messages are viewed (industry recognized statistic)

B. 13.58% will click-through to a landing page (Twilio data on 193M volumes used with Twilio’s link shortener for the marketing use case)

C. 1.84% landing page conversion rate

IMPORTANT: It is recommended to use your landing page conversion data here and recalculate the ECR. 1.84% is from a Hubspot analysis specific to e-commerce and is one of the more conservative figures. 

SMS ECR Formula: A*B*C = 0.24%

Let's then say that email has a 0.02% ECR. This is how we reach that number:

A. 19% of emails are opened (Twilio 2023 Email Marketing Benchmark Report)

B. 4.48% will click-through to a landing page (Twilio 2023 Email Marketing Benchmark Report)

C. 1.84% landing page conversion rate. Use the same landing page conversion rate as SMS.

Email ECR Formula: A*B*C = 0.02%

Step 3: Assess the dollar value of a conversion.

Determine the monetary value of each conversion. This involves understanding your company's preference for financial analysis, such as the need to calculate ROI based on top-line-revenue or gross profit. 

For example, if you are calculating ROI using gross profit and your product sells for $200 with a 10% profit margin, then each conversion yields $20. 

Conversely, if you use top-line revenue, then $200 would be the value of a conversion.

Step 4: Forecast volume sent per year by channel.

The foundation of this calculation is the aforementioned volume of subscribers that you have estimated multiplied by the number of campaigns that you intend to run.  

Step 5: Estimate costs by channel. 

Include all expenses in your cost calculations to ensure accuracy and fairness in comparisons. This includes costs per SMS or email, any subscription fees, additional service costs, etc. You may also want to consider including implementation and ongoing management costs, if relevant.  

For SMS and email, your costs might look like this:

• SMS: $0.01 per message

• Email: $0.0005 per email

Step 6: Calculate total revenue, total costs, and total conversions.

To illustrate how this works, we’ll use a hypothetical scenario with 1 million subscribers for a single campaign where each conversion is worth $20.

• Email only: 34% (340k) subscribe to email for marketing but not SMS.

  • Conversions: 340k * 0.02% ECR = 68

  • Costs: 340k * $0.0005 = $170

• SMS only: 13% (130k) subscribe to SMS for marketing but not email.

  • Conversions: 130k * 0.24% ECR = 312 

  • Costs: 130k * $0.01 = $1,300

• Email and SMS both: The remainder of the 530k subscribe to receive both email and SMS for marketing.

  • Conversions: 530k * 0.24% ECR = 1,272 (This a conservative estimate as the added emails likely increases the conversion rate.)

  • Costs: $5,565 (volumes * respective costs)

Step 7: Calculate your ROI. 

Now that we have all the individual parts figured out, the final step is to plug them into the ROI formula: (benefits - costs) / costs. 

Total Conversions: 1,652

Total Benefits: $33,040 (1,652 conversions * $20)

Total Costs: $7,035

Calculations:

Step 1: Benefits of $33,040 - costs of $7,035 = $26,005

Step 2: $26,005 / costs of $7,035 = 370%

ROI = 370%

5 best practices for financial analysis

When presenting your analysis, follow these best practices:

1. Make an informed decision by presenting all numbers and options. For example, you can determine the ROI of conducting an “email only” campaign or “SMS only” campaign with the above numbers shown in step 6. “Email only” comes in at a whopping 700% ROI, but the total conversions are 174, driving only $3,500 in value.

2. Use actual data whenever possible to increase the validity of your forecast.

3. Clearly state your assumptions and data sources to alleviate concern from the recipients of your analysis.

4. Consider building various models. Perhaps show high-medium-low scenarios,or calculate break-even or payback period over a number of years.

5. Run tests along the way to see how you can improve your conversion rate, decrease your costs, or increase your value.

Forecasting for multichannel marketing is certainly doable and the ROI is likely pretty high. Consider starting small, testing it out, and then ramping up after proving the ROI meets your business objectives.

By following these steps, you can create accurate forecasts and compelling business case justifications that demonstrate the value of your marketing efforts and support strategic decision-making.

Boost your ROI with Twilio

Want to learn more? Check out our recent webinar where we walk you through performance measurement and ROI analysis of multichannel communications. For more tailored support, reach out today to talk with your Twilio account team.