insight
Created on:
January 1, 2015

Email Marketers And The Law Of Diminishing Returns

In economics, the Law of Diminishing Returns states that if one input used in the production of something is continuously increased while all other variables are held constant, you will reach a point where each additional input eventually yields smaller and smaller increases in production, or diminishing returns. This law holds true in many facets of our personal and professional lives yet we rarely give it much notice because to many of us, more of something good is ALWAYS better. In the for-profit business world the primary goal is to maximize profit for your company. As business owners we typically maximize profits by adding more inputs like salespeople and software developers. There is a point at which the cost of additional inputs (people, product) exceeds the value created by adding the inputs. We see this when the next person hired or product developed produces less profits than those that came before it. This could mean that all inputs going forward will be less profitable or actually unprofitable. At this point, adding more inputs becomes a bad idea.

Email marketers face this dilemma every day. I have been party to many conversations in recent weeks that go something like this:

“My boss wants more email addresses in our production database. He wants me to purchase email addresses / correct our invalids to make them valid / add a ‘recently found’ database that hasn’t been touched in years, etc. etc. I know this is risky but I can’t convince my boss not to do this. What should I do?”

The ‘bosses’ in this equation are always men and women responsible for email revenue. The bosses always suffer from the same perception that ‘if my average email generates $X.XX in profits, adding Y new emails must drive profits up.’ If your email program is profitable, and you consider the law of diminishing returns, this logic holds up pretty well provided the cost of the next email isn’t higher than the profit it generates.

Unfortunately, the law we consider here has a fundamental flaw: when you add risky email addresses it’s nearly impossible to keep all other email marketing variables constant. The variable most likely to change is the most influential variable in the entire email equation. When perception forces the bosses to make this fatal mistake your email deliverability is likely to fall immediately. This fall will make the cost of adding risky emails, no matter how cheap they are, an unprofitable decision.

Another thing to consider in this debate is whether your ESP will even allow you to mail to these new-found assets. Most ESPs have their own internal quality assurance databases of risky addresses. Acquiring data on the cheap is likely to trigger your ESP’s internal QA thresholds. This means that your new email addresses are too risky for your ESP to deploy. These types of checks and balances save ESPs from taking on unnecessary risk and thankfully save marketers from themselves.

At the end of the day, delivering email messages to the right inboxes at the right time is the best way to maximize profits in the email channel. A few marketers understand this but most are stuck in the ‘more emails = more profits’ rut. With email, more can certainly be better if ‘more’ is added in the right way. Taking the easy way out by purchasing, fixing, or pulling data from the email graveyard is likely to force all the bosses to learn the hard way about email inputs and diminishing returns.

James McLachlan
James McLachlan is a co-founder of BriteVerify, which is the global leader in email address verification and helps over 35,000 customers in 150 countries collect better data and run smarter campaigns around the world.