Direct-mail advertising is used by every type of business, from supermarkets supplying weekly circulars to pay-per-click advertisers sending coupons to clients. Use direct mail to announce the opening of a new store or upcoming sale or to provide discounts for a particular service to a select group of people. A direct-mail campaign can target an audience either broad or narrow; multiple marketing factors determine the rate of return, which varies for different campaigns.
Rate of Return
The average rate of return on direct mail campaigns is generally 1/2 to 2 percent, according to JWM Business Services; in a campaign involving 100 pieces of mail, two to four people can be expected to respond and half that number to make a purchase. The numbers increase when the customer gets more exposure to your brand and when you narrow the market with specific objectives. Create objectives with a strong call to action, such as a coupon. For example, instead of advertising a general storewide sale, target a specific frequent-buyer group with a 10-percent savings on select merchandise.
Calculating Monetary Return
Calculate the return for a direct-mail campaign by multiplying the four key elements: sale price, number of mailings, response rate and conversion rate. The response rate is the number of people who respond to an ad; the conversion rate is the number who make a purchase. Subtract the campaign cost and divide the total by the campaign cost; this gives the rate of return. For example, assume you spent $1, 000 to send out 100 postcards advertising a product for $50; 10 people came in, but only five people bought the product. In this example, the calculation is 50 times 100 times 10 times 5; subtract 1, 000 from that product and then divide the difference by 1, 000 - resulting in 249, or about 25 percent.
Related Reading: The Average Success Rate of Direct Marketing
Direct Mail Versus Other Campaigns
The rate of return varies for each direct-mail campaign. Because it is possible to lose money when advertising, determine the cost effectiveness of the campaign before investing a large amount of time and money. The advent of the Internet ushered in new direct-marketing ad venues, such as email advertisements, pay-per-click ads and other keyword advertising programs. Depending upon your market, your advertising dollars may be better spent in another type of advertising. Consider using other forms of direct marketing, such as emails or e-newsletters, if a direct-mail campaign is not profitable.
Planning an Effective Campaign
Determine the effectiveness of your campaign by calculating the monetary return of your direct-mail ad. The expense includes the printing and mailing costs and the man-hours spent developing the campaign. For instance, if you spend $10, 000 to develop and $5, 000 to print and mail 4, 000 pieces, the total cost for the campaign is $15, 000. If your product sells for $200, about 75 people - a return of about 2 percent - must respond and buy your product for you to break even and for the campaign to be worth the investment.