News
 How
to Calculate Expected Direct Mail Results
By Jim McCraigh
One thing to be learned about direct mail is that
there are as many different profitable response
rates as there are business and consumer mailers.
But direct mail response rate, while important, is
only one factor in determining overall
profitability.
In fact, a response rate of 3 percent can be a
disaster, depending on how your costs and prices are
structured. Response rate (or capture rate) alone is
not usually a meaningful metric upon which you
should base a mailing decision. Rather, the expected
gross margin on the direct mailing is what should
determine whether or not you will make money or lose
your shirt on a particular mailing.
A couple of years ago, a marketing manager contacted
me about helping him improve his direct mail
response rate. Once I began working with him, he
shared that his response rate was only 4/10 of one
percent (.004). In his prior job in the same service
industry, response rates regularly averaged 5/10 of
one percent – or 25 percent higher. That distressed
him greatly, but after some careful analysis, we
learned that he was actually doing better in his new
job.
I have detailed the calculations below:
At his old company, his average mailing was 40,000
pieces with a response rate of 5/10 of one percent
at a cost per mailer of $.59 yielding 200 contracts
worth $270 each or $54,000 in revenue. With a
mailing cost of $23,600, the gross margin on the
mailing was $30,400. Since he was selling a service,
there were no product costs. Bottom line was that
each mailer sent generated 76 cents in gross margin.
In his new position, he was mailing far more mailers
- 80,000 per campaign at a lower per piece cost of
$.52 each. With a response rate of 4/10 of one
percent yielded 320 deals worth $325 each or
$100,400. With a mailing cost of $41,600, the gross
margin on the mailing was $62,400. Since he was
still selling a service, then there were no product
costs. Bottom line was that each mailer at the new
company generated 78 cents in gross margin – two
cents higher than at his last job.
At his new job, my client was buying printing at a
better price because he was mailing more pieces, had
a slight postage savings due the fact that he was
mailing to a tighter geographical area, and his new
company had a higher selling price. On his next
campaign – with the help of some copywriting
enhancements, he was able to improve his response
rate by 10 percent - (to .044%) improving his gross
margin per mailer to 91 cents. His company was able
to build on that even more with some additional
training for their inside sales reps.
The same goes for direct mailings that are designed
to yield leads. Sales as a result of those leads can
be tracked back to a specific mailing campaign
through a coding system. I’ve used some as simple as
different colored response cards.
In the final analysis, direct mail response rate is
not always the definitive measure that it is often
thought to be, but just part of the total picture.
--- Jim McCraigh is the author of “How to Write
Words that Sell”. For a complimentary eReport on
improving your response rates, go to
www.mccraigh.com.
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