Estimating the Value of Notifications: A Guide to Maximizing ROI

June 12, 2024
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Estimating the Value of Notifications: A Guide to Maximizing ROI

Notifications such as shipping updates, appointment reminders, large withdrawal alerts, or flight delays are an integral part of customer engagement. However, ensuring the cost associated with sending notifications is driving a return on investment (ROI) can be challenging since notifications often don’t correlate directly to revenue. We’ve created a  three-step approach to quantify the value of notifications and illustrate the outcomes through examples of flight delay notifications and shipping updates. Let’s dive into our examples!

How to estimate the ROI on notifications

Although notifications don’t have a direct correlation to revenue the way purchases do, we can estimate the value notifications bring to your company.

Step 1: Estimate how often your notifications will deliver a financial impact. 

Step 2: Assess the dollar value of a financial impact.

Step 3: Calculate your ROI.

Throughout the process you’ll be asked to use creativity, internal sources, and respected research to calculate the value of your notifications. You’ll quickly learn that this is an achievable objective and it can be a little fun as well!

Watch the webinar now and learn how to measure the performance and ROI of your omnichannel communications. 

Step 1: Estimate how often your notifications will deliver a financial impact.

To begin, refrain from thinking of the total number of notifications sent and instead reframe it from a customer’s point of view. Ask yourself, “If I were to receive 100 of these notifications, how often would they be extremely important to me?”

Flight delay notifications example

For a flight delay, perhaps early notification would enable you to arrange childcare or switch flights to meet business requirements. Using myself as an example, I say that I’d find the early notification extremely important 5% of the time, conservatively. In other words, we could say that 5% of passengers would find  early notifications about a delayed flight extremely important.

Shipping notifications example

For shipping notifications, begin with the aforementioned strategy by asking, “If 100 products are shipped, how many times is it vital for the recipient to know in advance?” This could be for preventing package theft, ensuring someone is home to receive the package, or rescheduling the delivery. 

Next, consider using some trusted research to help build your estimates. For example, according to Capital One Shopping, 0.46% of package shipments were stolen in the U.S. in 2023, and 50% of online consumers worry about package theft daily. This means that at minimum, shipping notifications would be extremely important 0.46% of the time, and they’d be extremely important to 50% of the population every single time. 

Adding trusted research to your analysis can help with the validity and final acceptance of your financial models.

Step 2: Assess the dollar value of a financial impact.

Notifications help ensure a positive customer experience, which leads to less churn, higher NPS scores, and ongoing customer lifetime value. If possible, gather information from your internal resources and use it to calculate dollar values. If this information is unavailable to you, then look to trusted research to help build your models. If you take the latter route, find ways to start measuring actual value so you can move beyond estimates and research over time. 

Flight delay notifications example

Previously, we estimated that flight delay notifications are extremely important to 5% of passengers. Our next step is to uncover what percentage of those passengers would be willing to forego flying on your airline because of the poor experience. 

Research indicates that about 25% of consumers have a preferred airline, making them the primary group at risk of switching loyalty due to poor experiences. 

Next, you need to determine the percent of loyal customers that are willing to switch due to a bad experience. For example, according to Statista, 37% of Gen Z that were loyal to an airline switched their loyalty in the previous year to another airline. Multiplying 25% by 37% gives us an estimate that the airline is at risk of losing the loyalty of 9.3% of passengers.

Your final metric needed is the dollar value of a lifetime customer, which I estimate at $10,000. Finally, calculate the dollar value of A*B*C.

A. 5% of passengers will find the notifications extremely important.

B. 9.3% of those are at risk of lost loyalty and future business.

C. $10,000 is the estimated lifetime customer value.

5%*9.3%*$10,000 = $46.50

In other words, the value, or benefit, of notifying all passengers of the flight delay is $46.50. 

Shipping notifications example

The financial ramifications due to shipping notifications could vary widely. They can begin with replacing lost or stolen shipments. For illustrative purposes, we’ll use a product cost of $20 and a shipping cost of $5.

Another item to assess would be the cost to resolve each inquiry by your customer support organization. And finally, consider evaluating the customer lifetime value lost for a percentage of customers who are so frustrated with the experience that they’ll never purchase from you again.

Step 3: Calculate your benefits and ROI.

The final step is to plug all your information into the ROI formula that your business uses. In these examples, I’ll use the standard ROI formula: (benefits - costs) / costs. 

Flight delay notifications example

Let’s estimate that five SMSes are sent per passenger at a cost of $0.01 per SMS. At 300 passengers, the total cost for the single flight delay is $15. When we plug these numbers into our formula, we see:

Step 1: Benefits of $46.50 - costs of $15 = $31.50

Step 2: $31.50 / costs of $15 = 210%

ROI = 210%

Shipping notifications example

Let's use the simplest example and only be concerned with the replacement cost of the 0.46% of packages being stolen. Here are the metrics we can use:

1M shipments per year * 0.46% = 4,600 stolen packages

Benefit: $20 product cost + $5 shipping cost = $25*4,600 for a replacement cost of $69,000 saved.

Cost: Three SMS notifications sent per order at $0.01 each = 1M * $0.03 for a notification program cost of $30,000.

Step 1: Benefits of $69,000 - costs of $30,000 = $39,000

Step 2: $39,000 / costs of $30,000 = 130%

ROI = 130%

130% is pretty darn good! 

But what didn’t we include? We didn’t account for the decrease in repeat purchases, and we didn’t include the costs to the support organization for every single one of those frustrated customers. The ROI for shipping notifications in this scenario would be quite high!

Best practices and key takeaways

By using creativity, internal sources, and respected research, you can quantify the value of your notifications. In order to increase the validity of your analysis, consider these best practices:

  1. Use actual data whenever possible.

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

Want to learn more? Reach out today to talk with your Twilio account team or watch our webinar that walks through performance measurement and ROI analysis of multichannel communications.