DIRECT MAIL ROI

DIRECT MAIL

Reach your target market

In direct mail marketing, the response rate is the percentage of mail recipients that respond to a particular campaign. Response rates can vary according to many variables such as the type of mailing, creative design and mailing frequency.

The Direct Marketing Association (DMA) in a study analyzed over 1,122 industry campaigns and discovered that the average response rate for direct mail is 2.61%. While that may seem low, response rates can be as high as 20% when sending to existing customers with targeted offers or as low as 0-1% when the mail piece is not targeted and/or is poorly designed. The latter makes up the vast majority of direct mail ROI.

Most organizations have limited advertising budgets and direct mail marketing campaigns are no exception. A savvy marketer will begin a direct mail campaign by establishing a budget and determining a break-even point, or the number of respondents that must buy to generate enough profit to pay for the cost of your direct mail marketing campaign

After this point is met, you can generate a positive Direct Mail ROI. If the break-even response rate is too high, then the campaign may be restructured to lower the customer acquisition cost and therefore lower the break-even response rate. Direct mail ROI is all about investing initial funds in the correct way to maximize your return.

You can always start with smaller more conservative campaigns to test response rates. This keeps you from committing to an ineffective campaign. If your response rates are good, you should expand your number of targets.

It has been demonstrated that direct mail marketing is more effective when it is concentrated on a smaller number of targets repetitively instead of sending to a large list in a single campaign. An undesirable response rate in the initial campaign may simply indicate that you’ve got to go back at them a few times to achieve success. Repetition can be a key component of Direct Mail ROI.

Keep your expectations reasonable, better to be conservative and exceed your expectations than to forecast optimistically and be disappointed. We can help you estimate your investment in direct mail marketing and your expected return Direct Mail ROI.

Let’s put this all into perspective with a few examples that calculate direct mail ROI:

Example 1

Example 2

Example 1

EX #1 A SWIMMING POOL COMPANY Let’s say you are an established swimming pool design and installation company looking to drive off-season sales. You want to provide a special offer to prospective customers with a pool starting at $50,000. The objective is to send out to target 15,000 households chosen based on residences with children, high home values and high household incomes. Projected Response Rate: 0.5% Typical close rate: 10% Typical Profit Margin: 20% Estimated Direct Mail Piece cost: $0.55 Revenue = 15,000 x 0.5% x 10% x $50,000 = $375,000 Profit = 20% x $375,000 = $75,000 Cost of Acquisition = $0.55 x 15,000 = $8,250 ROI = 75,000/8,250 = $9.10 profit per $1.00 spent A more effective campaign would be a personalized mail piece sent to smaller sample of recipients, for 3 consecutive months. In this case you could expect a big increase in response rate, perhaps to 2.5%. In this case you will send a total 15,000 pieces to 5000 targets. Projected Response Rate: 2.5% Typical close rate: 10% Typical Profit Margin: 20% Estimated Direct Mail Piece cost: $0.75 Revenue = 5,000 x 2.5% x 10% x $50,000 = $625,000 Profit = 20% x $375,000 = $125,000 Cost of Acquisition = $0.75 x 15,000 = $11,250 ROI = 125,000/11,250 = $11.10 profit per $1.00 spent Although the second scenario is better, both are worth the cost. Even at a 0.5-1% response rate, is it worth the investment.

Example 2

DIRECT MAIL

Direct Mail ROI

Let’s put this all into perspective with a few examples that calculate direct mail ROI:

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