Posted by Brian Berg Google+
A must read for small businesses aiming to improve their direct mail effectiveness
Whether your marketing plan has included direct mail marketing in the past and you want to make improvements, or it’s your first time and want to cover all the bases before you begin, this document will help you take notice to the most important elements of a successful direct mail campaign.
Low Ticket / High Ticket Items
Direct mail is not for every business. Simple math will tell you if you’re product or service will provide a positive return on investment through the use of direct mail. In general terms, higher ticket items have a greater likelihood of turning a profit, and lower ticket items are less likely. Determining if your business will benefit comes down to setting realistic expectations on response results and how much profit per customer you can expect.
Low Ticket Example - Books
Let’s start with an example of two businesses, one is an author attempting to sell his newly written book, and the other is a bookstore attempting to sell discount loyalty cards. The author sells his book for $24.00 and since he’s selling it himself, he keeps all the profit, save the cost to print the book at a cost of $10.00 each. Let’s take the average cost for a quality direct mail piece (including printing, mailing list, mailing service, and postage) of $1.43/pp x 5,000 = $7,150. Let’s also say that the author has the reputation of writing a very good book and the author was able to hit the perfect audience. For practical sake we’ll put his response at 2%. This would mean that his 2% books sold will generate $1,400 profit ($14/book x 100 books).
Clearly, this response rate would not generate a profit for our author; in fact, our author doesn’t break even until 10.22% response ($7,150/$14 = 511 books/5,000 mail pieces). Now let’s look at the same mailing but a different offer; the discount loyalty card for the book store. The loyalty card costs $25 and offers the buyer a 10% discount on all purchases for a full year.
Here we have a couple of things working in our favor. We have a much lower cost to produce and issue the card, let’s say $1, and we also generate repeat business. The down side is that we’ll have to sell all books to this card holder at a reduced price. Some card members will not redeem the full value of $25 discount card which may or may not be viewed as a plus. The bookstore that can offer at least an hour of pleasure browsing for the average visitor, card members will come back again and again and redeem their full value.
This should be considered a positive in the eyes of the bookstore owner as they will surely make more revenue in the long-run, even if they are selling books at a discount. In this second example, a 2% response would generate much higher profits per new customer generated, thus a positive return on investment. To follow the math in detail read the next paragraph, otherwise, skip to the High Ticket example. Let’s look at the numbers for the bookstore offering a discount card via direct mail.
We’ll set the mail piece cost and response at the same rates as the first example. $1.43/pp x 5,000 pieces = $7,150 in campaign cost. 100 responses x $25/per card = $2,500 gross revenue. This loyalty card costs $1/each x 100 cards = $100 or a gross profit of $2,400. Let’s now consider that 60% of the responders redeem the full cost of their discount card, and the remaining 40% only redeem ½ the value. Let’s also assume that the average mark up on all books in the stores is 100%.
This would mean that the 60% fully redeemed cards would purchase $250 ($25 card cost / 10% discount) in one year to breakeven on their purchase of the $25 discount card. Even with a 90% discount, this would yield $111 ($250 total revenue – book cost ($250/.90) / 2 = $139 book cost) x 60 = $6,660 in profit on these book sales. The other 40% of the discount card buyers redeemed half the value generating an additional $55.5 total per customer profit x 40 = $2,220. So, adding the profit on the actual cards of $2,400, plus 100% of the book sale profit of $8,880 ($6,660 plus $2,220), we come to a gross total profit of $11,280.
High Ticket Example – Furniture Retail
With high ticket items promoted via direct, the math needed to understand why it works is quite simple. Far fewer responders need to make a purchase in order for the campaign to be a success. Instead of a $24 book, or a $25 discount loyalty card, higher-ticket items such as mortgage refinance (averaging $3,000 to $4,000 and up in commission to the mortgage broker), retail furniture (profits of $500 plus per piece of furniture), or a new automobile (net profit to the dealership of $500 to $1,000 plus), can quickly absorb the cost of a campaign in just a few sales.
Higher ticket items sold through the mail simply covers the investment cost faster with far few responses. Few responses needed to break-even on your direct mail investment means a much lower investment risk. When considering direct mail, every small business owner should consider the profit per unit sold, and work through the numbers to determine if what their break-even point will be. It’s a good exercise for any business professional to at least understand what the best lead acquisition program is for their respective business. By measuring break-even and ROI every time, you are better able to invest your marketing dollars more wisely.
Rate of Response
There truly is no industry acceptable response rate. Some will tell you that 1% to 2% is average, while others will tell you that between 1/2% to 1.5% is more likely. The truth is that far more first time mailers will attempt direct mail one time and one time only. They will neglect the basic preparation and perhaps see zero response from their sizable investment. Their first direct mail test is so painful that they will simply look elsewhere to promote their business. This does happen often. And the main reason for this is not just because their hitting the wrong audience, with the wrong offer, wrong creative, and at the wrong time. It’s more likely a combination of these exact factors.
Successful direct mail is truly an art and science. Successful direct mail is achievable but it requires more than paying someone to get your logo on a postcard and in front of a mail recipient. It requires one to go through the process of evaluating what exactly your mail recipient will respond to and what they won’t. You have a mail box and you receive direct mail advertisements every day. What do you see that stands out from the crowd? Why do you respond to only a few pieces of direct mail and ignore the rest?
Likely you’ve got all the gardening supplies you need today. You’ve seen these types of bait-and-switch direct mail offers before. You’ve been to that restaurant and it’s not what the mail piece says it is. You simply cannot afford that new car or vacation right now. Your children are grown so the mailer used the wrong mailing list. You’ve just refinanced your home and are definitely not in the market. Don’t put the same offer and same mail piece in front of the same people.
Consider something different when you mail. Consider a much stronger offer to the right audience. Consider your competition and what they’re offering. Consider the emotional side of your potential customer and how you could position your product or service as a solution, rather than a low cost leader. Talk to a direct mail professional, or two, about what you should expect, what you might want to offer, and what you might do to increase your response rates before you invest in direct mail, or any advertisement medium for that matter.
The Process
As with every advertisement medium, to maximize your chances for success, start with a plan. Put pen to paper and draft exactly what you plan to do with every dollar you spend, the number of people you want to mail to, what your direct mail audience looks like, what your results expectations are for this campaign, and how you will execute all the necessary items to make it happen when you want to make it happen. In your plan you will want to be sure you include what increase level of inventory you will want to have on hand to support the additional business, and do you need to adjust the labor schedule or hire more staff to provide satisfactory customer service.
Drafting a plan will help you cover those items that are sometimes over looked and can help you prepare for your next campaign event by comparing notes from previous campaigns. The process of a direct mail campaign starts with identifying who you will want to mail before you develop your printed material. This way you get your creative juices flowing in the right direction. Once the mail pieces are printed, you’re stuck with them. Depending on the acquisition mailing list you are ordering, some will have restrictions as to what they can mail. If there are restrictions, you’ll want to gain approval with the art and copy before you go to press.
And make sure your mail piece pairs well with the audience you are planning to mail. We’ll talk more about pairing the piece with the audience later. Align yourself with a team of industry experts. Talk to the printer and list broker to make sure you’re comfortable with their experience level in the industry you are in. If nothing more, they can help you properly set your expectations and run through the numbers with you such that you can determine if this investment is right for your business.
The printer may have the ability to provide the mailing list for you, if so; have them run counts of the audience you want to mail so you can firm up your potential market territory. Be sure there are enough mailing list records that fit your desired audience within the market boundaries you wish to mail. This mailing list count will give you a clear picture of how large your potential audience truly is such that you may want to make several mail drops over time, staggering them in equal quantities to accomplish your campaign goals. Your printer will not only tell you how much everything will cost and how long everything will take, but they will also be able to tell you how long the postal service will take to deliver your mail to it’s final destination.
Talk to printer about timing, and realistic delivery times. Make sure this timing matches your desired “open day” and in the case of an event, be sure you give the mail recipient enough time to plan his/her week to fit your event day into their schedule. Again, aligning yourself up with an industry experienced printer or mail service provider will help you plan accordingly. So basically you identify your audience, decide on some preliminary themes and offers for your mail piece and sit with your creative artist. Explain your concepts and ask for suggestions. Again, if you’re working with experienced professionals in your industry, you should be able to get some possible samples or input as to how this layout might look before the final copy is completed. The artist will provide his/her final mock-up for your approval. This mock-up should impress you, if it doesn’t, ask for a revision.
Be sure to read every word on the mail piece to check for spelling errors that the address and phone number are correct. This final piece then goes to print and is quickly applied your mailing list address. Once this is complete it’s off to the post office. This whole process could drag on for weeks, or happen within a few days, depending on how efficient you and your team are. Should you plan for multiple drops with the same mail piece, your printer can save you quite a bit of money but printing all the pieces the same day and storing any unused pieces for later drop. Be sure to ask ahead of time if your campaign will include a volume discount.
Mailing List Data
For starters, let’s consider your most valuable asset; your existing customer list. By far, most every business can benefit from compiling and maintaining an internal database of customers. If you’re in an industry that generates potential repeat customers, mailing to this existing list of customers for new business is the most success direct mail prospecting you can do. We’ll discuss this type of direct mail campaign shortly. For those businesses that do not generate potential repeat customers, you can still benefit from maintaining a database of existing customers.
This too will be discussed in greater detail shortly. The main point here is that your database of existing customers should to be compiled and maintained. Information to include in this database are first and last name, mailing address, phone number, email address, and any transactional data you can capture on your customer; how much do they purchase, how frequently they purchase, how recent did they purchase, what products or services they purchased, and did they respond from a previous direct mail campaign or other form of advertisement. The more you are able to segment your internal customer database, the better you’ll be able to version specific communication to them whether it be postal direct mail, email, or other mediums.
Repeat customer type businesses
For those businesses which pay special attention to existing customers to keep them coming back for more, it’s imperative that you systematize your communication with them in an attempt to develop a communication dialog. Like a good restaurant owner remembers his/her customers, refers to them by name, and knows what they would like on the menu, your existing customers too must be remembered, or be forgotten.
Direct mail is an excellent way to develop this relationship. Through invitations to an event or offering a discount for loyal customers only, you can recognize your existing customers and make offers to them differently than you would to non-customers. As this database grows, look for patterns within the transactional data you’ve collected. You may find that your most profitable and frequently purchasing customer base all reside within 4 miles of your store location. Identifying this pattern allows you to mail reminder letters to this group, while the customers who live further away might be mailed a discount loyalty card offer. The more you understand your customers, the better you’ll be able to identify opportunities for growth.
Acquisition Mailing List data
Not all businesses have repeat customers. Many businesses will generate a sale from a customer which satisfies the customers need for years to come. Businesses such as real estate, life insurance, and mortgage lending all win a customer, and then likely not see them again for years to come. In order for this type of business to survive, you must sell a “high-ticket” item, be located in an extremely busy industry where flocks of people are walking by their store front, or focus on nurturing referral business.
For these types of businesses, it’s still important to maintain a database of internal customers. If only to follow up, thank them for their business, and ask for a referral. With simple analytics, you can also profile your customer database to get a better idea of what they look like, to then mail to other similar looking people. The purchase of this “other” data is considered an acquisition mailing list. It’s one that you acquire from a mailing list vendor. Your goal is obviously one of finding new prospects that look exactly like your current customers, thus increasing the likelihood of a positive response.
Internal Customer Database Profiling
Database profiling is the process of appending demographic and psychographic elements to a customer list of names and postal addresses. This is done by passing your internal customer mailing list against a larger universe mailing list of the population that contains not only the names and addresses of the these people, but also various demographic and psychographic elements, and appending data where there is a match of name and address. The larger the internal customer database of names and addresses, the more statistically valid your profile results will be. The ideal quantity for a statistically valid sample is 10,000 records or greater, however, many businesses will draw conclusions about their own customers with quantities as low as 3,000 records.
Of course, the higher the quantity, the greater the accuracy will be. Many service providers will offer a number of predetermined “bundles” of append-able elements for consideration. Depending on your product and service offerings, you should choose the most relevant bundle for your profile. As an example, if you’re a multi-location home remodeling business with multiple markets, you may want to choose a bundle of elements that include property / mortgage data instead of one that includes hobby / interest data.
Elements such as year build, dwelling type, homeownership, length of residence, home value, and estimated LTV will likely paint a clearer picture of what your current customers look like in each market territory that’s relevant to buying behavior in your industry. The process can be fairly simple. So long as your database of customers is in a digital form and that all the fields in your database are consistent, the programmer should be able to perform the task within a few days and provide a penetration summary of the percentages of your database that have been appended and by what element. From here you can draw conclusions about your existing customers, i.e., what income and age range most closely represents your customer, what is the value of their home, and is there a pattern of how long they’ve lived at their current residence? There are many more complex variations of utilizing this technology.
The profile of existing customers might be compared to the profile of other residences in the same market territory. In this case you would be looking for not only what your customers have in common with each other, but also how they look differently as compared to the rest of the population. This information can be used for versioning your advertising messaging across all mediums. The small business owner may not have an internal customer database that’s sizable enough to profile. If this is the case with your business, you may still have a fairly good idea of what your customers look like. Talk to your mailing list provider to determine how close you can get to your “wish list”. Until you’ve properly accumulated a sizable “profile-able” database, you will most likely have to depend on your “best guess”. Continue collecting your names and addresses as best you can so that you’ll be able to use this information to serve your data mining needs later.
Pairing your audience with your offer
Many a small business owner makes the mistake of coming up with a direct mail piece before truly considering their audience first. For practical purposes, let’s assume you are planning an acquisition mailing. Decide first who you are going to mail to before you begin designing your direct mail piece.
Considerations
• Consider things like what your competition is mailing and how you will look as compared to your competition.
• Consider the time of year you are mailing and what seasonal events might be competing for your potential customer’s attention. As an example, mailing during the holiday is potentially dangerous in that many might have their attention (and available dollars) spent on the holiday occasion.
• Consider the affluency (and location) of people on your mailing list. Are they the type that will travel across town to save $5.00.
• Consider the age range of your mailing list and what you would communicate to them to truly grab their attention. • Consider multiple versions of your mail piece to better communicate to more than one cluster group.
You may want one mail piece drafted for a younger segment, and another mail piece drafted for a senior audience.
Mail piece absolutes
There are 3 primary elements to a mail piece you absolutely must include. They are as follows:
1. Creative Creative design is that artistic side of you mail piece that for many is the most difficult side. What colors, font, clip art, photographs, design, paper quality, and white space should be included on your mail piece?
2. Copy What are you going to attempt to say to these prospects? What are you not going to say to these prospects? How much content will you include in relation to the artistic design of the mail piece? All these questions will be answered in what we call “copy”.
3. Offer The offer is a crucial element of this mail piece. Many small business owners miss this extremely important element. What exactly are they offering the mail recipient? If you cannot offer something of value to your direct mail audience, you’re doing little more than reinforcing your brand. The absolute goal with any small business owners’ direct mail campaign is response / results. Make an offer that causes your mail recipient to respond.
4. Call to Action The “call to action” is the time frame the offer is extended for. If you’re having a grand event, state the time and date for this event is to occur. Without a call to action, you’ll miss out on “sense of urgency” that brings people to take action. Remember, what’s vitally important is that you have something of value. If you don’t have something so totally awesome available that you want to scream it to the world, you probably shouldn’t use direct mail. Likewise, if you don’t have something so totally awesome available that you want to scream it to the world, then maybe you should focus on creating something worth screaming about.
Campaign Measurement
The last portion of this tutorial article is to discuss measuring your response. It’s very important that you measure something every time you mail. Why? Because you can. Unlikely many types of advertisement mediums, direct mail is as measurable as you want it to be. And the more you measure, the more you’ll learn, and the better you will mail again. The key is that you make smarter and smarter improvements to every direct mail campaign so that direct mail yields a greater return on your investment. At the very least, count the number of people walking through the store on event day, or an increase in sales revenue immediately following a direct mail promotion.
Better yet, offer a discount coupon that’s redeemable at point of purchase so that you’re able to track actual redemption, when the redemption started, and began to slow, and how much sales came in as a result of your coupon mailing. Consider new customer sales from increased sales of existing customers.
Measure what type of customer responded from those who didn’t respond. Look for patterns with the types of people visiting your business, going to your website, purchasing vs. browsing. Poll these people if you can and directly ask them exactly what they would need to see happen so as to act today, as opposed to just browsing. Campaign measurement is extremely valuable and should always be implemented. Even if your results are less than satisfactory, what you might learn may be far more valuable to you that the dollars you’ve invested.
For more information about what you can do to make improvements with your next direct mail campaign, talk to one of the many helpful consultants available to you at BB Direct. Visit our website at BB Direct, or call (866) 501-6273 to learn about the various targeted mailing lists that's right for your business direct mail campaigns.