Oct 16, 2013
While marketers talk a lot about response rates (the percentage of all recipients who took the action – like calling or visiting your website – that you asked them to take) ultimately the success of your direct mail campaign is measured by your ROI. That’s your return on investment, and it is a measure of the dollar value of the results your mail campaign generated relative to the amount of money you spent.
Calculating your ROI
Let’s take an example. Sarah owns a house cleaning company. She just hired a new employee, Jane, and to keep Jane busy Sarah wants to bring on four new clients. So she decides to send a postcard advertising her services and offering a 20% discount to new clients. She uses Click2Mail to produce a 6.5 x 9 Every Door Direct Mail postcard and sends it to the 400 addresses in her neighboring area that most of her clients live in. The total cost of her mail campaign is $196.
Within a week after Sarah sent the mailers, she has visited five homes to provide quotes for service. Four of those decide to take her up on her offer. Accounting for the 20% discount, the total amount Sarah earns for just the first cleaning on those four houses is $400. Three of the clients decide to have Sarah come back every week; those clients bring in $975 per month (and most clients stay with Sarah for years).
Just looking at the initial cleaning, Sarah’s ROI is 204% ($400 return / $196 investment). But taking into account the long-term revenue generated by the three new long-term clients (even just assuming a month’s worth of revenue), Sarah’s ROI is 701%. For every dollar she spent, she generated $7. Not bad!
There’s no firm definition of a “good” ROI or a “great” ROI. Certainly, your ROI should be over 100% – you should be getting back more than you put in. Beyond that, you’ll have to test to see what you can do. Here, we’ve listed 3 tips to help you maximize your ROI.
3 tips to maximize your ROI
1. Increase the effectiveness. The effectiveness of your direct mail is measured first by the number of people who respond to your mailer and second the number of people who then buy from you. When measuring your ROI the number one thing you look at is how many people were prompted to buy your good or service because of that mailer. (After all, you could have a sky-high response rate, but if those responses don’t turn into revenue, your ROI won’t be sky-high.) So one way to boost your ROI is to increase the number of people who actually buy from you based on the mailer. Check out steps 1-3 for ideas on how to do that.
2. Balance cost. In order to maximize your ROI you want to get the best bang for your buck; you must find a balance between cost and effectiveness. In other words, going cheap won’t necessarily increase your ROI, if it decreases your effectiveness. How do you know? You test. Split your list in half randomly and send the less costly mailer (say, a 4.25 x 6 black-and-white postcard) to one half and the other mailer (say, a 6 x 11 jumbo full-color postcard) to the other half. Measure the number of sales that each postcard generates. Then calculate your ROI to see which is higher.
3. Mail with a purpose. One of the most important keys to increasing effectiveness and keeping costs down – to maximizing your ROI – is to test different options and measure results. Every decision you make (full-color or black-and-white? flyer self-mailer or booklet?) should be purposeful – you should have a reason (based on measurement and testing) for making that decision. If you’re just getting started, try out both ideas to see what gives you the best ROI. Then choose that option going forward.