How to Calculate the Success of a Direct Mail Campaign
The first thing you need to determine? The close rate needed to break even.
One of the services we perform through Whitestone Partners, our consulting firm, is to analyze the return on investment (ROI) of different types of marketing efforts. We had a client, for instance, who used direct mail to sell his product. He had mailed 500 potential clients and sold 17 products; he was excited about the results.
He asked us if we thought he should borrow money in order to mail to another 1 million potential customers. We agreed that this was an interesting opportunity. However, before going all in, we suggested that he focus on three things:
The break-even point
The first thing our client needed to determine was the close rate needed to break even. In the test, he had a close rate of 3.4 percent (17/500). For direct mail, that is typically very good. However, he still needed to verify that, given the economics of his product, this close rate would make him profitable.
Here are definitions for the terms used to make this calculation:
- Close rate — the number of closed sales divided by the number of pieces mailed
- B/E close rate — the close rate you need, to break even on the mailing
- Variable mail cost — the cost per piece mailed including postage, printing, etc. (these costs increase in proportion to the number of pieces mailed)
- Fixed cost — the cost of executing your direct-mail campaign, including creative development, campaign management, etc. (these costs do not change as a function of the number of pieces mailed)
- Gross margin — the money (in dollars) you make from each closed sale (the sales price minus your cost to deliver the product or service)
- Pieces — the number of pieces of mail you drop
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