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Also See: Direct Mail: Why It Works And How To Use It Direct Mail: Formula for SuccessBy Tom Egelhoff
How do you do it correctly, you ask? For direct mail to be effective, three things have to happen. First, you need a good list to mail to. The mail must go to the people most likely to want your product or service. I probably wouldn't put McDonalds® coupons in a Weight Watchers mailing. Second, there must be an offer that your customers will want to respond to. As one of my tips points out, "Buy One, Get One Free", works better than 50% Off. Also fear of loss is more powerful than expectation of gain. "Limited Time Offer", "Respond Now" or "Don't miss Out On Big Savings". Third, you must take advantage of the postal rates the USPS (United States Postal Service) offers. You can dramatically cut mailing costs by designing your mailing piece to fit specific mailing regulations. Always check with the post office before designing any mailing piece. Also, don't assume your marketing or advertising agency knows the regulations. Most don't. So, you may be considering using direct mail to promote your business. The question usually is, "Where do I start?" Let's start by knowing exactly what you want your mailing to accomplish. I want a certain amount of revenue We all want our adverting to produce income but at times you may want to achieve a specific amount of income. If I was a farmer and wanted to harvest 100 bushels per acre, there is a minimum number of seeds I have to plant to have a chance of accomplishing this. I know not every seed I plant is going to germinate and grow. Direct mail is no different. There are a certain number of mailing pieces that have to be sent to realize the revenue you want. In order for this formula to work, three things are needed. First, the amount of revenue you want your mailing to achieve. Second, your closing ratio. 100 customers see the product, 50 buy it, your closing ratio is 50%. Third, you will need to estimate the response rate. Most successful direct mailing produce a 1% - 2% response. That's successful? 98% of the people don't respond to the mailing? Trust me, if you get 2% or better with your mailings and your closing ratio is 50%, you'll make a good living. Here is your formula for computing number of direct mail pieces needed to produce a specific revenue amount. To Achieve A Revenue Goal of $10,000 if the average sale is $50.00 Average sale = $50.00 Would be: $50.00 x 50% x 1% = 0.25 Let's suppose you can improve your response rate just 2% with a better offer. If you can, you only need to mail 13,333 pieces. If your mailing was a postcard at .13¢ per card you save $3,466.00 in postage to achieve the same $10,000 in revenue. That's the way to do direct mail right. I want to make a specific profit amount. Most of us are in business to make a profit. In most cases you think your profit is determined by the marketplace. With direct mail you can generate profit and it pays for itself. In this formula, you need to add your profit margin to the mix. For this example we'll use a profit margin of 25%. Let's adjust your above formula to the following: To Achieve A Profit Goal of $10,000 if the average sale is $50.00 Average sale = $50.00 Would be: $50.00 x 25% x 50% x 1% = 0.0625 Let's again suppose you can improve your response rate just 2% with a better offer. If you can, you only need to mail 53,333 pieces. If your mailing was a postcard at .13¢ per card you save $13,866.00 in postage to achieve the same $10,000 in profit. How can I determine the gross and net profit from a mailing? The success of a direct mail campaign is very simple to determine. If it costs more than it produced, it's a failure. If the opposite is true it's a success. Advertising should never cost a company money. It should always produce revenue. Here are the formulas to compute gross and net profit on a mailing. To Compute Gross Profit of Direct Mail Campaign Average sale = $50.00 Would be: $50.00 x 50% x 25% x 10,000 x 1% = $625.00 Gross Profit To Compute Net Profit of Direct Mail Campaign number of mailing pieces = 10,000 Would be: 10,000 x 50 x 50% x 1% x 25% -$1,000 = $-375.00 Net Profit What happened? This mailing campaign was a failure. It lost $375.00 more than it produced. The last word on Direct Mail Formulas As you can see, losing money in direct mail advertising is possible and perhaps even probable if you don't follow the rules. The first two formulas may demonstrate that your business is not ready for direct mail. If it is, make sure you have a current mailing list and a good offer. Once again, when it comes to direct mail, small towns have a definite advantage over large cities. First, the list is usually smaller. For example, in a town of 25,000 your customer base may only be 10% (2,500 people). Mailing postcards to 2,500 potential customers, even at full first class postage of.20¢, is only $500.00. If you mail to this group 4 times a year, you are looking at postage costs of $166.66 per month. This should be affordable for most small businesses. If addressed properly the post office will charge considerably less. Direct mail is an excellent way to keep your name in front of customers. Use it consistently to keep in contact with your customers. Each mailing may not produce immediate revenue but over the long haul, it will produce the most important product your business needs...customers. (To Main Menu) This article may be reproduced for your non-profit group or
organization provided it is not altered in any way Used With Permission Based in Bozeman, MT, Tom Egelhoff is the author of How To Market, Advertise & Promote Your Business Or Service In A Small Town, and The Small Town Advertising Handbook: How To Say More And Spend Less. He is also a seminar and workshop presenter and trainer. He may be reached at 888-550-6100 or PO Box 271 Bozeman, MT 59771-0271
Would you like Tom Egelhoff to speak on direct mail at your business function or convention? Click here for information, topics and pricing.
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