The best way to get more customers is to mail them something like a new tie or a 10-pound box of Godiva Chocolates. Right? But those gifts aren’t really feasible, are they? No, I didn’t think so.
So how about simply mailing potential customers a few nice letters, or a few postcards? Yes, that’s still one of the most effective marketing campaigns.
When you know your target market, you can minimize your marketing expense by mailing just to your most likely prospects. Here, direct mail really rocks. The more focused and targeted your mailing list is, the better (= less costly, with more orders per pieces mailed) your mailing works. Conversely, when your most likely customers aren’t easily defined or are strewn across several boundaries, then direct mail probably won’t work.
You can’t mail to everyone; it’s way too expensive. But, by following a few rules, you can determine whether a particular mailing will be successful before you spend money on it.
Rule 1: Start with basic costs. A mailing (letter and brochure) to any group of prospects will cost you at least 50 cents per piece. So let’s figure on 50 cents per mailer and see what happens when we mail.
Why 50 cents? It’s 37¢ just for postage, plus list costs can be 10¢ for each name and address record. Plus envelope, letterhead, brochure, and maybe mailshop services to put it all together, and presto: it’s expensive.
What does all this mean? It means if you mail 1,000 pieces, it’s going to cost you $500. If your list is 5,000 names, it’ll cost you $2,500 to mail to everyone on it; and if you’re mailing to 10,000 prospects it’ll cost you $5,000. Five grand! Wow.
Here’s the upside: suppose your test mailing works and you make money. You mail 1,000 pieces and you make $750. Then you mail 10,000 pieces and make $7,500? Now, after a few other incremental mailings you roll out and mail to the rest of the list. If the list is 2,000,000 records you make–well, you do the math. But I’m getting ahead of myself.
Some people say direct mail is expensive; some say it’s cheap. Your point of view will depend on how much income you make on each mailing. And that, in turn, will depend on (A) your response rate; (B) your gross revenue, and (C) your gross profit per sale. Here’s how to figure all this out.
Rule 2: Work the numbers backwards. To figure out if a mailing will be successful, you’ll need to know what percent response you must receive to show a profit. For example:
- Your mailing is 1,000 pieces.
- Your mailing cost (at 50¢ each) is $500.
- Your product sells for $100.
- Your product (and shipping) costs you $50.
- Therefore, you will make $50 gross profit on each sale.
How many people have to buy your product for you to break even? Answer: 10. If you had the correct answer, pat yourself on the back and get a beer. Get me one, too. No TV yet, though . . .
A 1 percent response rate on 1,000 pieces mailed = 10 orders (10 sales in this example).
Ten sales means $1,000 in gross revenue,
With costs for the product and fulfillment at $500, your gross profit on these 10 sales is $500.
This will cover the cost of the mailing.
Therefore: you need a 1 percent response to break even.
With anything less than a 1 percent response, you lose money
With anything more than a 1 percent response, you make money
Rule 3: Use what you have learned to reap profits. Now, let’s get profitable. If you tweak and fine-tune your direct mail package and offer to make it draw better, to get just one more person to order, here’s what happens:
If 11 people order, you make money. When the first 10 people bought your product, your gross profit ($500) covered the cost of the mailing. With the next purchaser, you made $50. And with every purchaser after that, you make another $50. Is it as simple as that? Yes, yes, it is. At 1.5 percent response (15 people order), you make $250.
Rule 4: Assess the required percent response. Following the steps outlined above, figure out the number of people who must order for you to break even (given your costs) and convert that number into a percentage. Then (see below) decide whether that is a reasonable figure to reach as a response rate.
Beware: some mailings are doomed from the start.
Take my book, How to Market a Product for Under $500 (please!), for instance. A lot of people ask me whether I market it through direct mail. I tell them no. Here’s why: A mailing of 1,000 pieces would cost roughly $500. My book sells for $30, and after fulfilling each order, say I make $10 profit on each sale, so I’d need 50 sales (50 _ $10 = $500) to cover the cost of the mailing and break even. Fifty orders out of 1,000 pieces mailed is 5 percent. In other words, I’d need a 5 percent response rate to break even. But a 5 percent response is very unlikely for selling a single product through the mail. This is why most products selling for $30 or less won’t work for solo direct mail offers. (Catalogs work because you are more likely to find a product you like out of the 100 or so offered in a catalog.)
Which brings us to Rule 5:
Rule 5: Be realistic. You need to be profitable with a response of 0.5 percent to 1.5 percent. Anything higher is unrealistic. It may happen, but don’t count on it.
Rule 6: Know the real ways to make money in direct mail. If direct mail seems likely to work for your books, start by finding a source for quality mailing lists. (See my article “Free Catalogs of Mailing Lists!” on my Web site, www.dobkin.com). Next, create a mailing package that’s profitable by testing lists, products, and offers. This is the hardest part, yet testing is the essence of how to be successful in direct mail. Eventually, if you stick with it, you’ll find something that tests successfully. Even if it just throws off a little cash after you pay for mailing, product, and fulfillment costs, that’s OK.
Once your mailing tests successfully and it’s profitable to mail to small segments of a selected list, increase the size of your mailings. After larger segments of a list test successfully, you can mail to the rest of the list with similar predictable results. The percentage of people ordering should be the about the same as with your test mailings.
If you make a profit of $50 on your first test mailing of 1,000 pieces, you should make $500 on a mailing to 10,000, and $5,000 on a mailing to 100,000. How about if this list has 2.5 million records? This is the way you make money in direct mail–you duplicate your success. The same package to the same list = the same results.
But you’re not finished making money yet. If you supplied a great product and great service to people who ordered, you’re going to get additional business from them. And referrals. Your cost to get them to reorder is near zero. You’re marketing to a warm market–they have become your best prospects: the group most likely to purchase from you.
So further mailings to this select group of purchasers will yield much better results and cost you much less. If your purchaser list is large enough, you can mail to just them in the future. Your response rate will soar. So will your profit. And then you can sell your list to others, creating even more revenue. Hey, if this happens, send me something nice. My favorite color is blue, my favorite car . . . a Corvette. A nice bottle of wine would be OK, too. Thanks.
©2004 Jeffrey Dobkin
Jeffrey Dobkin, author of How to Market a Product for Under $500! and Uncommon Marketing Techniques, is a specialist in direct response copywriting who speaks often on the subject. He also analyzes direct marketing packages, ads, catalogs, and campaigns. For free samples of his work, call 610/642-1000.
Essential Direct Mail Terms
- COG = Cost of goods; what you spend on the product you send
- Fulfillment = Cost of packaging and shipping orders
- Gross Revenue = Your total income from a mailing
- Gross Profit (GP) = The money you made after you’ve deducted COG and Fulfillment (also defined as total revenue less cost of goods; or, still more colloquially, “Money you still have in your pocket after buying the goods and shipping them to your customers”)
- Percent Response = number of people who buy your product out of the number mailed, expressed as a percentage