The True Cost of Email Marketing

Does your email pricing match your expectations?

Tiered rate cards can be used for calculating hosting charges, interest rates, credit card fees, the list goes on.

Email pricing for publishers, the rate they’re charged to send emails, looks a bit like how retailers are charged to process credit card payments.

In retail, two popular forms of payment processing rates are the most prevalent today: Interchange Plus and Tiered Pricing.

Retailers like Interchange Plus the best because it’s transparent, with the retailer being charged a percentage per transaction. The tiered pricing model is less transparent, but simplifies pricing by providing bucket rates. Tiered pricing also often includes lots of extra fees that aren’t accounted for in the buckets.

The cost of email marketing typically works on a similar tiered bucketed pricing model, and like retail tiered pricing models, often ends up in hidden fees you weren’t expecting.

The same set of rates can be used to calculate two very different invoices

There are two ways a tiered rate card can be used to compute a bill when it comes to email: Best Tier and True Tier.

Here is a hypothetical, ballpark figure of what a large mailer would expect the cost of email marketing to run them from a tier of one email service provider.

• 0-5 million at $1.5 per M
• 5-10 million at $1.00 per M
• 10 million+ at .75 per M

Of course, these rates may be all-inclusive with some providers and other providers may charge for services on on an a la carte basis, like customer service support for email delivery management.

Best Tier Method: Some email service providers use a tiered rate card to find the highest or lowest  rate that a client qualifies for  in any given month, and then uses that rate multiplied by their entire email volume to calculate the cost of emails sent.

• Best Tier pricing: Sending 12 million emails  using a fixed rate is:
  • 12,000,000 / 1,000 X $.75 = $9,000
  • Total Cost: $9,000

True Tier Method: Other email service providers take the more complicated route of charging for the emails sent at each tier of the rate card.

• True Tier pricing: Sending 12 million emails at different tiers is:
  • 5,000,000 / 1,000 X $1.50 = $7,500 (bottom tier)
  • 5,000,000 / 1,000 X $1.00 = $5,000 (middle tier)
  • 2,000,000 / 1,000 X $.75 = $1,500 (top tier)
  • Total Cost: $14,000

As you can see, even if the two email service providers are showing the same tier rate, the bill the client would receive at the end of their first month would be very different.

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Read the fine print, or pay the hidden costs of email marketing

We recently experienced a customer story in which the publisher had interpreted their deal to be the simple Best (fixed) Tier where they got the best rate for all email sent during a given 30-day period.

After switching to the new email service provider, and after setting up their system and warming up their IP addresses, they got a monthly bill that was much higher than they had budgeted for or anticipated.

When they disputed the bill based on their understanding of the contract, they were instructed to take the finer read of the actual contract fine print, so to speak.

The contract they had signed was not for a Best Tier, and did indeed indicate that they would be charged for emails sent at each of the tiers, True Tier. The contract they signed is a two-year arrangement that will be difficult to terminate and will place them significantly over budget for the entire two-year period.

Thankfully, the email marketing manager that did the negotiating has solace in the fact that both the company’s Chief Financial Officer and Chief Marketing Officer also read the contract and misinterpreted the way charges would be calculated.

Perhaps the saddest part of the story is that in 20/20 hindsight, they would have gone with a different email service provider then the one they selected, had they understood how the bill was going to be calculated.

In real life, this isn’t the first time I’ve seen a publisher misinterpret a tiered rate card. There is no right or wrong way to interpret the rates when calculating a bill and one must look at the actual contract language to see how the rates are going to be implemented.

This goes side-by-side with not understanding that the contract often calls for customer service to be paid for by the hour, email delivery management services to be paid for by the hour, email delivery audits to be paid for by the hour, and all system development to be paid for by the hour. Often the client misunderstands the scope of services being provided by an email service provider to be all inclusive when they seldom they are.

While some might not think that $.50 or a dollar per thousand makes a big difference, given that most publishers earn $10, $20 or even $50 per thousand emails sent from a combination of commerce and sponsorship revenue, that doesn’t change the fact that an extra $5000 per month over a two-year period is $120,000 in expenses more than were anticipated.