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measuring response & calculating ROI 

What to Expect:

Measuring Response Rates and Calculating ROI

The Direct Mail Association reports that the average direct mail response rate is 1-2%. First, let’s look at exactly what this means:

Understanding Statistics

It is important to understand if you only send out 100 postcards, you could meet the average 1-2% response rate without getting a single response. A 1% response rate does not mean you will get 1 response to your first 100 postcards. Rather, response rates represent averages calculated over hundreds of mailings. This is why consistency is the single most important principle in planning a direct mail campaign. To achieve an average or better response rate, you either need to mail repeatedly to the same list and/or significantly increase the number of pieces you send.

Measuring ROI

Since it inevitably costs money to make money, it is critical that your direct mail campaign includes a way to calculate your ROI, or return on investment. There are a few different ways to measure ROI but the following formula is the most common:

Revenue ÷ Cost = Return on Investment

Sample ROI Calculation: A home entertainment center wants to send out some postcards around their store location to promote an upcoming sale.

Mailing plan: 200 postcards mailed 3 times to the same list

Cost: 200 x $.54 per postcard = $108 x 3 mailings = $324 total cost

Revenue: 11 visits resulting in 6 sales totaling $4,097
(2 TVs at $999 and $599, Home Surround System $499, DVD Player $250, Gaming System $350, Laptop $1,400)

ROI: $4,097 ÷ $324 = 12.65 (or, for every marketing dollar spent, they made $12.65)

Tracking Response

In the preceding example, it may have crossed your mind: “how did they know that those 6 sales were a result of the mailing?” Maybe those customers saw a TV commercial, or maybe they just happened to walk by the store. Particularly if you have multiple marketing channels, like direct mail, print advertisement, and email, you will need to build a way to track each response back to a specific marketing piece. This is often an inexact science, and some amount of overlap is inevitable (or, for that matter, desirable), but here are two easy ways to begin to track responses to your direct mail piece:
  1. Make it part of your 1st conversation or contact with each prospect: Every time someone new calls your office, enters your store, or visits your Website, be sure to ask: "How did you hear about us?" And don't be afraid to ask: "Which card did you receive?"  It is important to make sure you have a procedure for tallying the responses. Educate your staff about (a) the importance of tracking and (b) what mailings are in currently in circulation, and (c) make sure that this data is recorded in a central location.
  2. Include a unique offer on each card: The offer itself can be the same to all your customer/prospect segments – you just need a unique identifier to trace a response back to a particular mail piece or list segment. Assign a unique promotion code to each mailing, or require the customer to bring in the postcard to receive a discount. Rather than printing a single batch of 1,000 postcards, print 5 batches of 200 with a unique code for each segment. make this easy because of our low order minimums.
Measuring response rates and calculating ROI is a process that will evolve as you improve your direct mail skills. For example, what if the home entertainment center above wanted to factor in repeat business – the Lifetime Customer Value – from those 6 new customers generated by their mailing?

Next: Be Consistent! >