Rather than use an email newsletter as a marketing tool or as an add-on for existing customers and subscribers, a small group of publishers has made the newsletter itself the primary business and, as a result, turned it into a massive, ad-supported revenue machine. The idea seems simple: you build a huge list of opt-in email addresses, deliver relevant daily content and then offer ad space.

Some of the most successful companies in this market include BeliefNet, with 12.57 million subscribers, and LifeScript, with 6 million+. With the potential for each name to return double or quadruple the amount spent to acquire it, these businesses can have a quick path to profitability, says Sujay Jhaveri, CEO Flatiron Media, who spent time at Beliefnet and iVillage.

In fact, Jhaveri says the business model will become more compelling as the costs of other traffic-generating techniques, such as paid search, continue to increase. “Compare the two models. You just spent 50 cents to get someone to click on a search ad. Unless you do something with that person on the first visit, they’re gone and there’s no way of reaching out to them again. In the case of a newsletter, you’ve spent 50 cents to acquire a name with permission to send them content on a regular basis and drive them to your site. It’s a much more cost-effective model.”

So, why isn’t everyone pumping out mass-market newsletters?

For starters, a handful of significant (but surmountable) barriers exist -- from staffing and infrastructure requirements to a savvy approach to analyzing email metrics. No worry, in our exclusive interview, Jhaveri offers tips to handle seven of the most critical issues in the newsletter business:

Tip #1. Steady supply of names
If you’re trying to create a standalone newsletter, you’ll need 500,000 to 1 million subscribers to attract attention from advertisers, Jhaveri says. The only way to get there is to work with consumer lead generation sites to collect opt-in names.

Working with companies such as Q Interactive, CoregMedia and Webclients, you can put a checkbox on a suite of websites where consumers can opt in to receive your content. Starting from zero seems daunting, but assuming that you have high-interest content with a broad target market, you can collect 1 million to 2 million names a month through such channels, he says.

But be prepared to pay for those names: each opt-in can cost between 40 cents to $1.00. Still, each dollar spent can return $2 to $4 in advertising revenue, says Jhaveri, and you can recoup your investment in as little as eight weeks.

Name acquisition remains a perpetual task to grow the business and replace lost names due to unsubscribes or hard bounces. Although Jhaveri says the rate of name attrition varies widely depending on the product, MarketingSherpa data has found that large lists experience 38% annual attrition.

To counter-act this, you must develop a consistent marketing plan to add new names based on those attrition rates and on the performance of different lists from different sources (more on this later). “You don’t want to add 5 million names this month and nothing next month.”

Tip #2. Appealing content
Obviously, the content has to be appealing to get people to opt in and open your newsletters. Fortunately, Jhaveri says it’s not hard to find a category or subject to tackle. Here are his suggestions on content development:

o Subjects with high interest to a large swath of consumers. Many successful newsletters tackle topics such as health, family, entertainment, food, fashion or beauty.
o Frequent delivery. A daily newsletter is the best model because it gives advertisers the most opportunities to put their offers in front of readers.
o Short, valuable content. Delivering something daily means you want to give subscribers small bites of information that they’re likely to open. Jhaveri suggests no more than 300 to 500 words. Those bites have to be appealing, though, so the most successful models usually employ a service or entertainment model (e.g., a health tip of the day, a daily recipe or a famous quotation).

Tip #3. Ad sales strategy
Once you have a list and a product, you need to attract advertisers to begin making money. Here are a few strategies for designing your advertising model:

- Balance the amount of content and advertising. There’s no formula for the right number of ads in a newsletter, so you’ll need to test a range of different sizes and placements. BeliefNet offers five ad sizes in four positions, for example.

Jhaveri says the 300 x 250 has been the best performing size for newsletters, but, depending on design, the addition of 728 x 90 banners and other smaller ads makes sense, too. You can also offer text ads to increase revenue without cluttering the page.

- Either build your own sales staff to sell ads or turn to an outside rep firm to handle sales for you. Startups likely will have to use an outside firm to sell ads while building their business, which means your margins will be lower.

But Jhaveri cautions that you need to have revenue in the millions of dollars annually, as well as the internal ability to support a sales organization, which not only requires a staff but management and other operational support.

- For companies with existing websites or other ad-supported products, newsletter ads can be sold separately or bundled with other placements. The right approach depends on the size and demographics of the newsletter audience and whether it offers different characteristics from your other products that would appeal to different advertisers.

Tip #4. Staff to prepare the newsletter
There is a host of ways to generate content, depending on the nature of the company developing the newsletter:

- Publishers with existing content on a website or in a print publication can repurpose it and push it out to a new list of subscribers in a newsletter.
- Companies without existing content can hire staff or freelancers to write newsletters.
- For health newsletters and other specialized subjects, publishers should license content from reputable sources.
- Free content is available for repurposing, too, such as books in the public domain or the Bible.

The cost of content development will vary depending on the model you choose, but Jhaveri says paying writers or licensing content won’t be a significant expense compared to other needs, such as name acquisition or infrastructure.

Still, this doesn’t mean you can just slap anything into a newsletter and expect the model to work. “Users can tell if they’re dealing with cookie-cutter content or something with unique value.”

Tip #5. Own your email infrastructure
Here’s where some of the bigger challenges arise. While it’s easy to create content and gather names, pumping out millions of emails a day is a different story. With the growing complexity of spamming regulations and individual ISPs’ anti-spam measures, you need an infrastructure and in-house, technical know-how to handle issues, such as throttling rules (how many messages can be sent per IP address in a given period of time).

For the most part, email service providers can’t handle the task -- or can’t handle it affordably when you factor in the cost to send millions of messages. “Every ESP says they can offer a better deal, but, ultimately, you don’t want to have a significant piece of your cost structure in email delivery. You want to spend your money on your marketing expenses.”

This means you need to buy your own hardware and software, including:

- Mail transfer agent servers. These are used to send the emails, staggering mailings to handle issues such as ISP throttling rules and handling multiple sending IP addresses. Each unit, which costs $10,000-$40,000, can typically handle 500,000 to 1 million messages an hour. Vendors include StrongMail and IronPort.
- Campaign management software. This is the intelligence behind the system. It segments the database based on any number of factors, picks the right lists and right IP addresses, inserts the right creative and handles all the tracking and reporting tools.

Unfortunately, Jhaveri says, no off-the-shelf product does the job properly, which means custom development. “The more sophisticated you get, the more likely you’re going to have to build you own code.”

Tip #6. Deep analysis of email metrics
Owning a powerful database and tracking tools plays into what is perhaps the most important aspect of running a successful newsletter business: the ability to track data and analyze metrics.

Some of the analysis is fairly straightforward. You need to track basic metrics, such as deliverability rates, opens, clickthroughs, etc. The analysis gets trickier in relation to your marketing efforts.

One of the most important tasks is analyzing the quality of the names you’re acquiring so you can determine which co-registration sources are giving you the best results and which ones you should stop using. The idea is to keep track of how much you’re spending on names from different sources and then see how those names perform over a period of three to six months.

Here, you must be able to segment your list by acquisition source and the date you acquired the names to track and compare factors, such as:

o Open rates
o Clickthroughs
o Unsubscribe rates
o Ad revenue per list
o Payback rate
o Lifetime value

Tip #7. Manage offers
Besides helping determine sources of quality names, this kind of tracking also helps manage your offers to existing subscribers to maximize revenue potential or minimize list churn. “Ultimately, it’s about yield management. You’re trying to maximize the performance of every source you have rather than bundling all your names into one list.”

Here are a few examples of how to do that:

- For subscribers with low open rates, you might offer a weekly digest form instead of a daily email.
- Loyal openers and clickers might be a target audience for cross-selling opportunities, such as offers to subscribe to another newsletter or other promotions.
- If you learn that new names perform best in the first month, you can establish an automated, timed series of offers to go out to take advantage of the honeymoon period.


Useful links related to this article

Case Study on DailyCandy's newsletters:
http://www.marketingsherpa.com/article.html?ident=23379

Special Report: Renting Email Lists – Costs, Deliverability & Targeting:
http://www.marketingsherpa.com/article.html?ident=29930

CoregMedia:
http://www.coregmedia.com/coregistration.php

IronPort:
http://www.ironport.com/

Q Interactive:
http://www.qinteractive.com/

StrongMail:
http://www.strongmail.com/

Webclients:
http://www.webclients.net/

Beliefnet:
http://www.beliefnet.com/

Flatiron Media:
http://www.flatironmedia.com/

LifeScript:
http://www.lifescript.com/