An e-newsletter has relatively low costs of entry and can quickly scale up to millions in revenues per year. Here's how to get started.
Dany Levy sold her e-newsletter DailyCandy to Comcast for $125 million.
Chances are there’s an e-newsletter (or ten) in your inbox right now. Hmmm. Is there an opportunity there? Do you see a burning need for, say, a lifestyle recommendation engine for young urban males? Daily financial tips and inspiration for independent young women? Trusted, seasoned advice for entrepreneurs from other entrepreneurs? (Wait...that's taken.—Ed.) If so, then maybe an e-newsletter is a business that could work for you. Here’s how the ad-supported e-newsletter model works.
The product is simple
An e-newsletter is like a magazine stripped to its essence: One article plus one ad, emailed every day. Most articles are under 180 words, with a consistent voice and theme, catering to a specific audience. But it’s not just about efficiency—it’s personal. “When someone subscribes, they invite you into their inbox on a regular basis,” says Ben Lerer, Founder of Thrillist Media Group, which has an audience of over four million, and revenue of more than $50 million. “That’s why advertisers continue to love email as a marketing tool. It gives them a chance to build a one-to-one relationship with consumers that few other types of media can match.”
A standard approach is to send an email every weekday with an ad next to the editorial, and then one email every week or two that’s purely an ad, called a “dedicated” email. The real action happens on the email. Visit the website of an e-newsletter, and the most prominent message you’ll see is sign up here. That’s because while archives and forums are helpful, email ads pay the bills.
How the economics work
Size matters. Most e-newsletters attract new subscribers through a combination of paid marketing campaigns, and free activities like referrals from readers. On a blended basis, it may cost in the neighborhood of $2 – $4 to acquire one reader. Over time, you would probably develop multiple editions, so that you pay to acquire a reader once, and send them several ads per day. Each reader typically sticks around for more than a year, viewing hundreds of ads along the way, creating a lifetime value 3x-5x or more than the cost to attract them. Ad rates are based on the number of emails sent (“CPM”, or cost per thousand), so the number of subscriptions is the key to making money. A typical e-newsletter might charge a $25-$50 CPM for daily editions, and a $100 to $250 CPM for dedicated ads. With 100,000 subscriptions, selling 35% of available daily ads (a reasonable assumption for a mid-sized e-newsletter) and 2 dedicated ads per month, revenue may be in the vicinity of $60,000 to $80,000 per month.
Three legs of the operation
The editorial team produces great content, written in-house or by freelancers. The marketing team grows the subscriber base. And the sales team secures paid ads. It’s very tough for one person to do all three jobs, so many e-newsletters start with two or more founders. Still, operations are fairly simple, and technology for delivering and tracking the emails can be “rented” from companies like MailChimp and SailThru.
How you get rich
There are three steps: Scale, build profits and exit. “E-newsletters are a great business because they follow proven, highly-scalable models, which make it easy to focus,” says Amanda Steinberg, founder of DailyWorth, an e-newsletter with more than 250,000 subscriptions. When e-newsletters reach significant scale, they can generate high margins. And they’re relatively capital efficient, requiring less than $5 million of capital to reach profitability. Plus, there have been some impressive exits, like Comcast’s acquisition of DailyCandy in 2008 for a reported $125 million.
Of course, it's not that easy
In general there are three things that can go wrong: You may not reach critical mass; you may not generate enough interest from advertisers, and the clutter in in-boxes may diffuse your partners' message.
With a small number of subscriptions, it’s tough to attract paid ads from brands with significant budgets. And since the amount you make per ad is tied to the size of your list, it’s usually better to focus on subscriber growth until your list is north of 40,000 or 50,000 before ramping up sales efforts.
That said, don’t just build your list and pray brands will pay later. Meet with brands and agencies early, to make sure they’ll be interested once you get to scale. The bad news here is that it could take over a year and an investment north of $100,000 before you can generate any significant revenue. Since 2000, when DailyCandy founder Dany Levy helped pioneer the e-newsletter business, the world has changed quite a bit. “Today there’s so much more inbox clutter, between emails, e-newsletters, and daily deals,” says Dany. “Plus, it’s tougher to break a story with a format that’s sent once per day, now that people share news in real time with tools like Twitter and Facebook.” Jacqui Boland, founder of Red Tricycle agrees, but adds that social media can actually help e-newsletters, too. “We used social media aggressively to spread the word about Red Tricycle, and it helped us add more than 200,000 subscribers in just 20 months,” claims Jacqui.
Done right, e-newsletters can generate great value for founders, investors, and subscribers. What’s your take on the business?
DAVID RONICK is an entrepreneur and mentor to founders. He has co-founded and exited three companies and coached over 100 start-ups. David is a graduate of Brown University and Harvard Business School and lives in New York. @davidronick