Direct Mail Marketing – Flushing Money Down The Toilet?

Direct Mail Advertising - Flushing Money Down Toilet

Is Direct Mail Marketing Effective Or Is It A Colossal Waste?

“I sent out a boatload of postcards, and you know what? I only got 3 or 4 calls. What a !@#$%^* waste! Direct mail marketing is a rip-off.”

I heard my real estate friend utter these words with obvious frustration about his latest direct mail advertising campaign. (Yeah, I’m pretty intuitive about stuff like that.) He just wasted a ton of money for nothing. That’s about the worst feeling in the world if you own your own business.

My friend’s not the only one feeling a little disillusioned with direct mail. I’ve heard similar stories from plenty of other business owners and the tune all sounds the same. Sent out a bajillion postcards, and nada, and so on and so on.

From just this sampling of my personal experiences, you might conclude that direct mail marketing simply doesn’t work in 2013.

The Lowly Dodo Bird - Image by Daniel Eskridge (danieleskridge.com)

The Lowly Dodo Bird – Image by Daniel Eskridge (Click to See More of Daniel’s Work)

But, if direct mail advertising has gone the way of the Dodo bird, then why do I keep getting direct mail from huge, incredibly successful companies every week offering me some pretty wonderful stuff? Are the big boys just so loaded with cash that they can afford to flush it down the toilet? Do they succeed just by the sheer repetition of their brand?

Of course, there are the expected players in the direct mail marketing game, Land’s End sends me their catalogs, Capital One wants me to get their special credit card, the local Chinese place wants to give me free chicken fried rice on Thursdays, and so forth, but I got a piece the other day that took me by surprise. It wasn’t the design, or the offer that startled me. It was the company that sent me the little white envelope.

Google.

Google uses direct mail.

Wait a minute. If a tech-only company like Google, with the vast powers of the internet at its disposal is using direct mail, maybe we should take a second and peek behind the curtain a little and see what’s going on.

As it turns out, about 9 out of 10 companies surveyed in 2012 rank direct mail marketing as their number one marketing channel (hat tip). Read that again. Nine out of ten! Companies like Disneyland, Time Warner Cable, Verizon, and Google, are all spending considerable effort on their direct mail advertising campaigns (more). In fact, United States advertisers like these guys spend an average of $167 per person on direct mail. Yes, my list is comprised of huge companies with plenty of money to burn, but they are also profit-driven companies. If a marketing tactic doesn’t benefit the bottom line, it’s thrown out the window.

Here’s what they know: compared to all other marketing efforts, their direct mail campaigns have the highest rate of gaining new customers. According to one survey of companies, direct mail reportedly accounted for gaining 1 in every 3 new clients, dwarfing the runner-up, email, and blowing away the much-loved channel of search engine marketing.

Let that sink in for just a second.

Far from the mantras you may have heard that “print is dead,” direct mail seems quite alive and well. Surprised?

How effective is direct mail, then?

DM News reports that in 2012 the average response rate for direct mail was 4.4 percent for both B2B and B2C mailings, which actually surprised them a little as well. Now, let me clarify a few things. As far as I can tell, based on the wording, this result is for direct mail of all kinds, some of which gets pretty creative. This isn’t just the ubiquitous postcard, or the spammy “Open to see what you’ve won” kind of stuff. I’m guessing there are sweet boxes, packages, and genius type stuff, that most of us simply aren’t going to be able to replicate. Also, this measures responses. At this point, we’re not discussing the actual “conversion rate” of turning a prospect into a customer. Still. That’s nothing to sneeze at.

Let’s talk possibilities.

What if you could manage just a 2 percent response rate for your direct mail marketing campaign? Would you feel like you’re flushing money down the toilet then?

Let’s walk through the costs and returns of a small-ish direct mail campaign. In terms of cost, we need to determine how much you’ll spend to get one customer. That’s called Acquisition Cost.

I wanted to make this exercise as close to real numbers as possible, so I did my pricing at PostCardMania.com. (Of course, these numbers can vary widely, so don’t send me hate mail if my numbers are off a little.)

Let’s say you decide to do a mailing of 2,500 large format postcards (6″ x 8″).

Large Format Postcard - Direct Mail Marketing

You’ll need to purchase a list from a data company, ballpark it at $100. The prices vary depending on the kind of data you need.

Then, your postcards will cost $600 to print them, about $625 to mail them, and $125 for address printing (unless you’re a masochist and want to put all the labels on by hand),

Your total is about $1,650. So, for 2,500 cards, your cost per unit is $.66.

So, how many customers can you get?

If you can generate a 2% response rate, that means that you’ll hear from 50 people from your direct mail efforts.

If you close the deal with 60% of them, that means 30 new customers for your business. So, you spent $1,650 to get 30 customers.

Your Acquisition Cost per customer is $55 each.

Schweww. You tired of math yet? No, I didn’t think so. As a business owner, you are acutely aware that you have to do the math if you’re going to succeed.

So, let’s see if we’re making good use of our advertising dollars.

At first, you may think that $55 per customer is way too much money to spend on a customer. And I guess it is, if you’re selling a $2 product that your customer will only buy once. That’s why we need to do one more set of calculations to figure out how much one customer is worth to you.

Let’s call this the Lifetime Value of a Customer.

In a nutshell, to calculate the lifetime value of a customer, start with the average amount of a purchase.

Let’s keep it simple and say that you’re selling one product for $50.

Further, let’s pretend that on average a customer will purchase from you twice each year.

At this point, you could calculate how much value your customer has per year, so all we need to do is dip into your books and make a rough determination of how many years your customers continue to do business with you. For our example, let’s say the average is about 5 years.

That means that your the lifetime value of your customer is $100 x 5 years = $500. (I like round numbers like that).

Calculate The Lifetime Value of A Customer

Play with these numbers to quickly determine the revenue you could expect. You'll be surprised at the value of one customer. Change any number to see the updated values.
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So, let’s recap. You spent $55 per customer, and a customer is worth $500 to your business. Just divide your lifetime value of a customer by your acquisition cost and you’ve got your return.

ROI On Direct Mail Marketing

You’ve made 909% return on your investment. Not bad at all. Spending $1,650 on your direct mail campaign will bring $15,000 worth of business over the next 5 years.

Direct mail clearly works in this scenario!

Now, before you rush out and start direct mailing every living thing, let’s talk about a few strategies that will help you make this response rate a reality.

1. Define your audience.

Spend time figuring out who you need to talk to. Don’t settle for a shotgun approach. That’s what led my friend to his awful response rate. He simply didn’t define his audience clearly. Once you have your audience defined, work with a list data company to create the right list for talking to that audience. Be willing to spend more for a highly targeted list.

2. Match your offer to your audience.

If you’re going to spend money to talk to your audience, make sure you’re saying something that they need to hear in order to respond. In other words, if you’re going to make an offer that they need to respond to, make sure it’s something they want. I know that seems pretty obvious, but it’s surprising how often that basic element is overlooked.

Be sure to make an offer that’s actually special, and not something lame. It’s important that your offer have a deadline as well, so your customers won’t set it aside with good intentions of calling you later.

3. Provide multiple ways to respond.

Not everyone responds the same way to an offer. Give your customers several ways to follow up with you.

Create a special landing page on your website, and give it a unique 800 call tracking number, or even a local number. Create a special video that helps further the connection with your future customer and put it on the landing page, along with a contact form and that custom tracking number. That way, you can tell who’s coming from which direct mail piece.

Give them a way to mail something in for those who love the mail.

And, of course, make sure you have a unique call tracking number that is a part of the main call to action on your direct mail piece.

4. Test small.

Here’s one of the beautiful things about direct mail advertising. You can test a smaller demographic, and see how different messages work. You can send different messages to subsets of your main list. Then, once you’ve determined the winner, you can go all out with your larger mailing. That’s working smart!

5. Track everything.

I hinted at this in point #3, but it’s imperative that you track what you’re doing with direct mail marketing. Grab a phone call tracking number and then look at the analytics to see which campaign messages worked better than others. If you’re going to use landing pages, make sure you create a separate tracking number for your landing pages.

6. Think long-term.

Many of us are looking for “one-hit wonders” that magically deliver customers to us. While direct mail does seem to offer some nice rewards, the best marketing happens consistently. Consider multiple mailings to the same list over a period of time, building on the message you’ve created.

So, you’ve done everything you need to generate a great response rate. You won, right?

Well, actually, no. You still have one final task of converting those responses into customers.

That’s where it’s critical to train those who are answering the phone to get this part right. Your sales team will be the first human interaction those potential customers have with your business, so make sure they know what to do. One powerful way to make sure they’re handling this all-important role well is to make sure your recording your sales calls, so you can review each call as needed to see how things were handled.

With all of that wrapped up, you have a successful, effective direct mail campaign on your  hands. Now, get out there and git ‘er done!

What are some stories that you can share about how direct mail has worked for you?