Marketing Cost Analysis

Identifying Your Best Sales Leads

In order to come up with the most responsive direct mail list you’ve got to know something about your best customers. How do you do that? Here’s the secret: Simply find people with the same demographic characteristics of your best customers.

To learn how, let’s review the factors that make up a direct mail campaign and see where customer profiling fits in.

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Direct Mail Costs

When you tally up the checks that you wrote for that last direct mailing program, where were most of the cost components?

If it was a direct mail initiative, the biggest costs were creative, postage, paper, ink and handling. The list was probably one of the smaller cost items. Yet the list is the hinge on which your cost per lead, cost per sale, and ultimately profit swings.

Let’s do a cost per lead and cost per sale comparison just for grins. We’ll use a 10,000 piece direct mail program as an example. That way you can add or remove zeros to draw a comparison to your own marketing program. Experience shows that most direct mail programs will spend between 450 and $1.00 per contact. Sometimes, even more. For our comparison we’ll assume you have a cost per household contact of 600. That means that you’ll spend $6,000 for our example of 10,000 piece direct mail campaign.

Calculating Cost per Lead/Sale

Response rates are fickle things. That’s because they not only rely on your offer and who you sent it to, but the creative design, timing and other more-or-less esoteric response factors. Typical response rates range between 2 per thousand (.2%) and  20 per thousand (2%). Some companies have done much better, and we’ll do our best to show you how they did it.

For this exercise, let’s assume you receive a direct mail response rate of 2%. That means  you’ll generate 200 leads for your $6,000 investment (10,000×600).

• Your cost per lead is $30 ($6,000/200).

• If your closing ratio is 25% you’ll turn that 200 leads into 50 sales.

• Your cost per sale is $120 (6,000/50).

The Secret of Direct Marketing Response Rate

Most people focus on their response rate alone. They count the leads. However, your response rate is more like a coin; there are two sides to it. With a coin, one side is ‘heads’; the other is ‘tails’. Using your response rate as the example, on the ‘heads’ side of the coin are the 2 respondents who said YES. On the ‘tails’ side are the 98 people who said NO to your offer. If you send your best, most powerful message in the world to the wrong people, it’s tossed into the waste basket along with the rest of their junk mail. However, even if you send a ‘lessthan-ideal’ message to the right people, it stands a chance of getting a response.

How to Increase Your Response Rate

The first thing to do is to identify your customers’ characteristics. What if you could make a list of questions to ask your best customers? Questions like: • What’s your age? • Household income? • Home ownership? • Family status? • Spending habits? • etc…

What is the Cheapest List?

How much is it worth to you if, by using a highly targeted direct mail list, you’re able to find just one extra person to say YES to your offer out of each 100 names you mail? Not only will you increase your response rate by 50% (probably more), but:

• You’ll generate an additional 100 leads.

• Your cost per lead will decrease from $30 to $20.

• Your marketing cost per sale reduces from $120 to $80.

• And, by converting the same percentage of those leads into clients, you’ll have 25 more sales.

So, what’s it really worth?

How about 25 x your average profit per sale.

The Lesson

Always use the most highly focused direct mail list you possibly can. List cost – while important – isn’t nearly as important as the response rate you receive. You’ll make more sales and find more buyers.