Response Rates and Return on Investment with Direct Mail

Here is a post from my business partner at Printz that helps you calculate Return on investment for Direct Mail. If you can get close to breaking even on a direct mail piece the first time out you should set a mailing up today. In addition to the direct response you get marketplace brand identity in your target mark or neighborhoods and that increases the value of your mailing!
By Kurt Johnson
This newsletter is about response rates and return on investment (ROI). When doing a mailing, customers desperately want to know what to expect for a response rate. There is no easy answer to the question because, though there may be an average of say 1% response, any individual’ s response will vary considerably. So if we give them a number, the chance of us being wrong and misleading the customer is very, very high.

I think a better, alternative way to look at response rate is to first look at ROI. Ask the question, “What does my response rate need to be to break even?” To get at the break-even, you need to know what the marketing cost per sale is. Here’s an easy cheat sheet: First, we assume that the total loaded cost per piece mailed is 50 cents. Then at .25% your cost per sale is $200 (.50 / .0025); at .5% the cost per sale is $100; 1%, $50; 2%, $25; 3%, $16.67; 5%, $10, 10%, $5. So, what does your cost per sale need to be to break even? Do the math.

The next question is, “Can I achieve the response rate needed to break even?” We can help you there. Most home improvement companies can get a .25% response rate on a mailing (though they still have to close those respondents). Retailers can get 1% or better. If you have a customer list, you can get 10% response rates or higher. We can also let you know what is not achievable and unrealistic. I had a call from a person that had a new kitchen item for peeling vegetables. That person wanted to do direct mail. I know that the best response rate is probably 1%, so I asked if they could live with a cost per sale of $50? Well, the product only sold for $20, so obviously not.

So, the alternative way to look at response rate is to know the rate needed to break even and understand if that is achievable. Then the challenge is to test the mailing to get at break-even or better. The drivers of response are, #1 – the list, #2, the offer, and #3 the creative. Again, we can help you there. Give us a call