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Direct Mail & New Customers

A direct mail cost analysis study

 

Identifying Your Best Sales Leads

In order to come up with the most responsive direct mail list you've got to know something about your best customers. How do you do that? Here's the secret:

Simply find people with the same demographic characteristics of your best customers.

To learn how, let's review the factors that make up a direct mail campaign and see where customer profiling fits in.

Direct Mail Costs

When you tally up the checks that you wrote for that last direct mailing program, where were most of the cost components?

  • If it was a direct mail initiative, the biggest costs were postage, paper, ink and handling.
  • If it was a telemarketing campaign, the biggest costs were time and line charges.

The list was probably one of the smaller cost items. Yet the list is the hinge on which your cost per lead, cost per sale and ultimately, profit swings.

Let's do a cost per lead and cost per sale comparison just for grins.

We'll use a 10,000 piece direct mail program as an example. That way you can add or remove zeros to draw a comparison to your own marketing program.

Experience shows that most direct mail or telemarketing programs will spend between 45¢ and $1.00 per contact. Sometimes, even more (especially for telemarketing). For our comparison we'll assume you have a cost per household contact of 60¢.

That means that you'll spend $6,000 for our example 10,000 piece direct mail campaign.

Calculating Cost per Lead/Sale

Response rates are fickle things. That's because they rely not only on your offer and who you sent it to, but the creative design, timing and other more-or-less esoteric response factors. Typical response rates range between:

  • 2 per thousand (.2%) and
  • 20 per thousand (2%).
Some companies have done much better, and we'll do our best to show you how they did it.

For this exercise, let's assume

  • you receive a direct mail response rate of 2%. That means
  • you'll generate 200 leads for your $6,000 investment (10,000 x 60¢).
  • Your cost per lead is $30 ($6,000/200).
  • If your closing ratio is 25%
  • you'll turn that 200 leads into 50 sales.
  • Your cost per sale is $120 (6,000/50).

The Secret of Direct Marketing Response Rate

Most people focus on their response rate alone.

They count the leads.

However, your response rate is more like a coin; there's two sides to it. With a coin, one side is 'heads', the other 'tails'. Using your response rate as the example, on the 'heads' side of the coin are the 2 respondents who said YES. On the 'tails' side are the 98 people who said NO to your offer.

If you send your best, most powerful message in the world to the wrong people it's tossed into the waste basket along with the rest of their junk mail. However, even if you send a 'less-than-ideal' message to the right people, it stands a chance of getting a response.

How to Increase Your Response Rate

The first thing to do is to identify your customers characteristics. What if you could make a list of questions to ask your best customers.

Questions like,

  • What's your age?
  • Household income?
  • Home ownership?
  • Family status?
  • Spending habits?
  • etc. . .

You could combine their answers to learn what demographic factors they have in common. And then boil that information down to the 5 most important characteristics your customers share.

The Payoff

If you could call (and reach!) all 10,000 people in our marketing example, and ask each of them questions about their own demographics, you'd discover that the majority of the leads you received are from people with demographics similar to your best customers. In other words, they'll answer YES to most of your questions.

And you'd also find that most of the people that didn't respond to your direct mail answered NO to many or all of the same questions.

What that teaches you is, by creating a direct mail list consisting of only people with the same characteristics as your best customers (those answering YES to all 5 questions), you'll get a better response.

If you can move just one more person from the 'tails' side of our direct marketing coin (the 98 people that said NO), to the 'heads' side (the 2 that said YES), you'll increase your response rate by 50% (from 2 to 3).

Now, that doesn't seem like a big deal.

But it makes a huge difference in your bottom line.

What IS the Cheapest List?

How much is it worth to you if, by using a highly targeted direct mail list, you're able to find just one extra person to say YES to your offer out of each 100 names you mail? Not only will you increase your response rate by 50% (probably more), but:

  • You'll generate an additional 100 leads.
  • Your cost per lead will decrease from $30 to $20.
  • Your marketing cost per sale reduces from $120 to $80.
  • And, by converting the same percentage of those leads into clients, you'll have 25 more sales.

So, what's it really worth?

How about 25 x your average profit per sale.

THE LESSON: Always use the most highly focused direct mail list you possibly can. List cost - while important - isn't nearly as important as the response rate you receive.

In other words, always remember that your goal is to find prospects that look like your best customers. You do that by profiling your existing clients. Create that 'ideal client model' from your overall customer database. Then, present your offer to others that are similar to your clients.

You'll make more sales and find more buyers.

Another Example

The US Air Force is a good example of the value of focusing. They have - and use - new laser-guided ordinance with great effectiveness. Do these bombs cost more than conventional bombs? Of course! Are they worth it? All you have to do is look at the pictures on television to draw your own conclusion.

Sure, laser-guiding your message directly to your best prospects costs a little bit more.

You'll probably pay a little more for your direct mail list. But, your results will be a dramatically increased response from more qualified prospects.

In the direct marketing game, it's a winning hand.

To locate YOUR most responsive mailing list, simply pick up the phone and call our marketing specialists at (800) 711-5478. Or, click the link below to fill out an Information Request Form. We'll respond promptly.


 
 
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