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The economics behind undelivered, failed SMS messages    

Uku Tomikas

17 Oct 2017 -

5 min read

Uku Tomikas

17 Oct 2017

-

2 min read

The cost and full impact of undelivered or failed messages isn’t immediately clear. The financial impact is not simply the combination of the failed SMS and the cost to resend the message, which isn’t very much at times. There are other indirect costs that result from undelivered SMS messages that matter from a financial perspective. Let’s take a deeper look into the ripple effect of undelivered messages, which make the reasons behind our focus on SMS delivery quality even more clear.

Here are a few examples.

Transactional SMS and PIN codes.

When SMS messages are used to confirm transactions, log into online services, or sign up for accounts, the indirect cost is lost revenue. An abandoned registration process that does not lead to a subscription, a halted transaction that does not lead to an additional sale, or reduced product use are all indirect costs that are results from failed SMS messages. In addition, it affects the brand’s reputation and support is often required. For a payment service provider with a handling fee of 1€, it means a loss of 1€ for each undelivered SMS, plus support time (let’s say 15€ per hour,) plus resending the message, plus lost revenue due to lost sales opportunities and less use of the product. So, a 2% decrease in delivery quality per 1000 transactions would mean 20€ in missed fees, 25€ in work hours (estimating 5 minutes per query due to an undelivered SMS,) and resending the messages. The total is 46€, or equivalent 920 SMS messages (to Estonia).

Reminders and notifications.

The indirect costs for missed reminders and notifications vary by use case –from severe, such as utility or emergency messages, to milder uses cases, such as reminders for appointments or package deliver. Regarding missed appointments, consider missed revenue (let’s use a dentist appointment in Estonia, costing 100€,) the dentist’s unutilized labor (1 hour here is about 50€,) plus the cost of resending the message, plus reduced customer satisfaction resulting in less patients. Add in support time, possible administrative issues (such as invoice reminders that are not sent out and latency is unduly charged,) etc. Thus, a missed dentist appointment costs around 150€ in lost revenue and labor alone. That’s about 3000 messages (Estonia.)  

SMS Marketing

Clearly, the indirect cost is lower conversion rates or missed conversion opportunity. For a campaign of 1000 messages with a conversion rate of 5% and a yield of 50€ per conversion, a 2% increase in messages delivered amounts to 50€ in additional revenue. That’s the cost of 1000 messages (again, Estonia.) So, an increase of delivery rates by 2% pays for the campaign itself. Some companies must consider brand image, as customers become accustomed to receiving discounts and coupons over SMS. Lastly, don’t forget the direct cost of resending mass amounts of missed messages, because the marketing department still expects conversion.  

To find out the true financial impact of undelivered SMS messages for your company, use formulas discussed in this blog and plug in the costs and expected revenues from your SMS use case. Think about the expected result of delivered SMS messages and work backwards. 

The second Payment Services Directive (PSD2) impact: Read the full report.


Uku Tomikas

Lead Sales Researcher

At Messente Uku is a part of Messente’s sales lab, taking a systematic and metrics driven approach to constantly improving the B2B lead generating process. As a yoga and meditation enthusiast he likes to keep a solid balance between crunching numbers and petting his pet pup Lucy. 




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