If you launch a direct mail campaign and drum up some new business as a result, then that means the campaign was a success, right?
Not necessarily. Although it’s always great to bring new customers aboard, it’s not as encouraging if the amount you spend on a direct mail initiative ultimately outweighs any benefits that come from the effort. In the end, it all comes down to numbers.
“Direct mail can be a profitable way to market certain products or services,” noted management consultants Doug and Polly White in their column for The Richmond Times-Dispatch. “It can also be an expensive waste of money.”
With direct mail, it’s all about the numbers
So, what numbers do you need to be crunching in order to ascertain whether your campaign is the former or the latter?
- The “close rate” (the number of closed sales divided by the number of pieces mailed).
- The variable cost of mailing (the expenses associated with postage, printing, etc., which are variable because they obviously rise in tandem with the number of pieces mailed).
- The fixed cost of executing the campaign (the expenses associated with design, strategy, etc., which don’t change regardless of how many pieces are mailed).
- The gross margin (your earnings from each closed sales, minus the variable and fixed costs associated with mailing and execution).
Ultimately, the duo explained, your breakeven, or B/E, close rate needs to be lower than your actual close rate in order for you to make money. If the two rates are identical, then you’re breaking even on your investment but not profiting. If the breakeven rate is higher than your close rate, your campaign actually lost you money – even if you did manage to get some sales out of it.
How to figure out your B/E close rate
You should already know your close rate – as mentioned above, it’s the number of closed sales divided by the number of pieces mailed. You can calculate your B/E close rate by dividing the fixed cost by the number of pieces you sent out, adding this figure to the mail cost and dividing the result by the gross margin. Remember, the optimal result is that your close rate is higher than your breakeven rate. If this is the case, the bigger the difference between the two numbers, the more profitable your direct mail campaign has been.
Need help determining the ROI of your direct mail campaign? We’ve created a handy ROI calculator to help you see the value in your marketing efforts.