When talking with people interested in testing the direct marketing waters, we frequently get the question, “Do you think it will work for me?”
Ah, the $65,000 question. Before gazing deep into our crystal ball for the answer, we often try to answer the question with another question – “What is a response worth to you?”
When you boil direct marketing down to the basics, that’s essentially the business we’re in – the response-generation business.
Direct marketing, which endeavors to communicate directly with a target audience to elicit a specific action or response, has been shown to have the best Return on Investment (ROI) when compared to other forms of marketing. But it may not be right for you.
Direct marketing yields the best results when you are selling a product or service that includes one or more of the following:
- The product has a relatively high profit margin (35% or greater).
- The benefits of your product or service can be articulated in three to four bullet points.
- You can assign a Lifetime Value to your customers through repeat purchases.
- You provide an incentive and timeframe to prompt action.
- You track your responses by solicitation.
The immediate goal on any direct marketing project is to determine how many responses you need to breakeven on your total project cost. For example, a standard 5,000 piece postcard mailing, including postage and prospect list, costs roughly $2,000, and typical response rates on a prospect mailing generally range between .5% and 3%.
Assuming your profit margin is 35% and your product sells for $125, you need to sell 46 units, generating $5,714 in revenue, to break even. The breakeven unit number is slightly under a 1% response rate, which is reasonable. You can see that higher margins and/or higher unit prices put less pressure on the response rate necessary to reach the break-even point.
Beyond breaking even, another factor to consider when mulling a direct marketing campaign is the lifetime value (LTV) of the new customers you acquire. Is this a single-sale circumstance, or will these new customers potentially purchase additional products or services from you? The economic dynamics of your business determine how you might quantify these benefits in relation to the overall project cost.
Over our four–plus decades in the direct marketing business, we’ve learned a few lessons over the years. Here are a few to consider:
- Don’t get your expectations too high on a prospect mailing. Acquiring new customers can be expensive and tedious, so focus on enhancing the potential upside with each customer once you get them in the door.
- Measure everything you do and test variables. One of the most frequent questions we receive is, “What works?” If we knew the answer to that question, we would have already published a best-selling book on the topic. Every situation and circumstance is different, so there’s no one easy solution. We recommend testing a variety of elements – timing, offers, packages, copy, graphics – to see how it changes the response.
- Use data-driven marketing strategies, especially if the target is existing customers. It’s too easy to send blanket e-mails or generic direct mail packages to everyone in your database. Show your customer that you know them by sending offers or information that relate to their buying habits or patterns.
If direct marketing seems like a viable option for you, here are a few tips on how to get started:
- Articulate three to four benefits the recipient receives from using your product or service.
- Formulate an offer that gives the recipient an incentive to act by a certain date.
- Decide whether a postcard or letter is best for your project and audience.
- Though they are generally more expensive to produce, letters can sometimes generate better results, especially when marketing more complicated or technical products or services.
- Postcards generally produce lower response rates, but are easier and less costly to produce. They are particularly effective when the goal of the project is to build traffic to a location or website.
- Leverage any in-house graphics. Many product manufacturers or franchise parent companies have stock artwork that can be used for little to no charge and provide a consistent look and feel with the company’s overall corporate brand.
- Inquire about possible co-op opportunities if you are a distributor for a product. Many manufacturers will help offset the cost of a marketing project if it features their product.
- Obtain a good target list for your project. This is probably the most important aspect of direct marketing, and we will cover it more extensively in a future post. If you’re using a company’s existing customer list, be sure to check that the contact info for each target is accurate. If the project is a prospecting effort, check to see when the data was last updated and spend the time to double-check that the contact information is correct before launching your campaign. Direct marketing projects are only successful when you can establish a direct connection with your target, so having a bad email address, phone number or mailing address makes it less likely for this to occur.
Should you have specific questions about your next direct mail campaign or want some help formulating a direct marketing strategy, we’re here to help! Feel free to contact us!
