Direct-mail campaigns have withstood the test of time to become a tried-and-true staple of effective business marketing. As you know, developing high-conversion promotional pieces is the key to realizing your return on investment (ROI); and testing different offers and promo variations within your target audience can help you fine-tune a profitable campaign. Everyone agrees that your audience, your offer and your promo pieces work together to turn mailing lists into customer lists. There is disagreement, however, when it comes to measuring response for direct-mail campaigns.
Measuring your response rate and/or conversion rate in terms of percentages is one way to calculate your direct-mail campaign success. Soft offers (a free gift, for example) typically do better than hard offers (trial periods before purchasing, a free visit from a salesperson) in response rate, if not conversion rate. Typical response rates fall between .1 to 5 percent; and good campaigns run between 1 and 3 percent. The conversion rate is the percentage of people who responded and ultimately make a purchase, and good campaigns can expect a conversion rate of 30 to 50 percent. In practice, this means that if you send out 1,000 promotional pieces and achieve a 3 percent response rate, you will have 30 responses. Since 30 to 50 percent of those 30 respondents are likely to make a purchase, you will have achieved a total of 9 to 15 sales from this campaign.
Many marketers use a formula to calculate return on investment in percentage and monetary terms. The most commonly used formula is: ((Number of Mailed Pieces x Response Rate x Conversion Rate x Sales Income) – Campaign Cost)/Campaign Cost = ROI. This formula measures your investment against your profit, and gives an accurate dollar value to the success of an individual campaign.
The common ROI formula is probably used by the vast majority of marketers; and for some it’s enough. Others believe the process should be taken a step further. The ROI formula will show you how much a campaign made, for instance, but not where your buyers came from. You can use geographic offer codes to determine who responded to your campaign, and who made purchases. Measuring geographic location can help you identify hot spots that you should target when developing your next campaign.
It’s well-known that marketing to loyal customers achieves a much higher rate of response than marketing to new prospects. Once a prospect makes a purchase and becomes a customer, they’re often moved to the customer mailing list and taken off the prospect list. This is a good practice, because your direct-mail promotions will approach these two segments differently. When measuring response rate of direct-mail campaigns, however, it is important to keep track of which loyal customers were first hooked as a prospect through a direct-mail promotion. In this manner, some marketers argue that tracking a particular campaign is a never-ending process so long as the customer becomes a loyal customer. The value of a lifetime customer, and those who come in through the customer’s word-of-mouth, is difficult to measure but it is suffice to say that it is very valuable indeed. Knowing and tracking the successive series of campaigns that have turned prospects into loyal customers is priceless when it comes to developing new campaigns.
To summarize, numbers say a lot about how much money a direct-mail campaign made, but optimizing future campaigns depends on more than percentages and dollar signs. Understanding where your customers are coming from, how they became customers, and how long they remain customers adds to the equation and can lend valuable insight when measuring response for direct-mail campaigns.