Let me state this upfront – I am no direct marketing expert. But it is such an important topic that I feel the need to share the little that I know with my clients.
The below is mostly relevant for direct mail – good old letters through a post box. While many of the principles also apply to email marketing I have put together a separate article on email marketing <here>.
For many just the mention of direct marketing brings mixed feelings. We have all been a victim of incessant unsolicited calls or came back from a holiday to find the front door inhibited by useless junk mail. If anything you may be thinking that using direct marketing in your business may negatively impact your image.
Fear not! If used correctly direct marketing is a powerful tool that can not only bring you more business but build your client relationship and make them feel cared for. Remember that warm lazy feeling on Saturday mornings when you feel like wasting a bit time on the couch and you hear the post drop through the letter box. What if you find a nice catalogue in there full of something that really tickles your fancy – latest tech gadgets, bike clothing, running gear etc. You may not need anything in particular, but you almost compulsively look through each page looking for a bargain. And sure enough there seems to be plenty of bargains in there. How likely are you to then actually make an order from the catalogue or through the business website?
Research from the Direct Marketing Association says that you are around 35 times more likely to respond to direct mail compared to email. If this was not enough, evidence suggests that direct mail is much more effective at acquiring new clients. Once you have established their trust through direct mail this will also increase your email response rates.
“Targeted directed mail boasts a 4.4% response rate, compared to email’s rate of 0.12% November 2012 1“
There are 7 key steps in the direct marketing process:
|1||Identify your target audience|
|2||Find the cost of buying the mailing list|
|3||Find the cost to print and post|
|4||Estimate your response rate|
|5||Estimate your sale value per response|
|6||Calculate your Return on Investment (ROI)|
|7||Do or Scrap campaign|
1. Identify your target audience
This is key. If you get this right you can get away with murder. For example you can buy a marketing list for people interested in bikes in UK or you can buy a list of people that live in radius of 3 miles around your bike shop, are interested in cargo bikes (your shop specialises in this), are in certain age group (you are unlikely to be a price candidate for buying bikes if you are older then 70!), and belong to a certain income level group (can afford to buy your product). The second list will yield much higher percentage response rate. Admittedly it is not always possible to go as granular as this (differentiation for people that like cargo bikes rather then just cycling is wishful thinking) but you get the drift.
Some descriptive criteria you can use are included below for Business to Customer (B2C) marketing:
- Geographical location
- Income levels
- Age group
- Gender group
2. Find the cost of buying the mailing list
There is the saying that the best things in life are FREE! If you already have a database of customer addresses this is a goldmine you should be using. If you don’t, start building one (just remember to ask for customer consent)!
Another free way of building a list that applies to Business to Business (B2B) marketing is using a local business search directory like Thomson Local and lifting the addresses of the businesses that you are interested in. An advantage of this solution is that it includes the trading address of the business whereas off-the-shelf marketing lists can sometimes include registered addresses.
But do not shy away from buying a list from direct marketing database. I have personally used MarketingFile with good results. I will say again – the trick is to have the list filtered well so you are only paying for leads that will yield great response rates.
Going back to the cycle shop example, say you have filtered the list to your liking and you are left with 2,000 contacts and you need to pay £0.70 for each name and address.
3. Find the cost to print and post
There are 3 distinct components to this:
- Cost of marketing copy
- Cost to print
- Cost to post
The cost of marketing copy can vary widely depending on who’s creating your sales letter, who does the formatting etc. I would certainly encourage you to try and write your own copy. The process of doing it will actually help you focus your marketing effort and can have positive spillover effects on other areas of your marketing. Still don’t underestimate the difference a good sales letter can make! The sales letter/marketing copy is the second most important component of your campaign after using a quality mailing list. I have put together a blog article listing the key rules you need to follow to write an effective sales letter <here>.
In the cycle shop example I will use a cost of zero for the marketing copy assuming the business will write one.
Cost to print will vary depending on size and colour of your material and cost to post is fairly standard. Let’s assume a value for cost to print and post of £1.20 for each letter.
4. Estimate your response rate
The most reliable way is to refer to the response rate you have from previous direct mail campaigns (make sure you track this by using unique discount codes linked to each campaign).
In the absence of that you can use the industry standard response rate of 4.4% but dial it down a notch to account for the quality of your direct mail list and marketing copy.
For the purposes of our example let’s assume 4% response rate.
5. Estimate your sale value per response
This is very business specific however I will say this: aim to sell a product or a service prices at least at £50. The lower the product value the more you need to sell and the higher the response rate you need and generally you attract lower quality customers.
So let’s be conservative and assume £50. And let’s assume a Gross profit margin of 60%. So if for every sale of £50 you make £30 profit
6. Calculate your Return on Investment (ROI)
This is the math bit. In simple terms:
|Marketing list cost||0.70|
|Print and Post cost||1.20|
|Estimated response rate||4%|
|Estimated Sales value||100.00|
|Gross profit Margin||60%|
|Mail list records||2,000|
|Results||Per Record||Whole Campaign|
So we ended up with ROI of 26% and a neat profit of £1000. There are couple of important factors here which actually make the investment even more favourable:
- the marketing list cost is a one off investment and we can use it for later campaigns
- once we acquire a customer it is far easier to make further sales to them compare to selling to new customers
- it is easy to scale – if you can afford to acquire 4,000 records instead of the 2,000 this can easily double your overall profit;
Please feel free to play around with the inputs and see the ROI for each of your direct marketing campaigns using our ROI calculator for direct marketing mail campaigns <here>.
7. Do or Scrap campaign
That one is self explanatory – decide if you are happy with ROI in step 7 and take action! If ROI does not warrant execution think if you can change any of the variables in your favour and test again.
I will end with 2 quotes:
“Direct mail — yes junk mail via snail mail — still reigns supreme, offering response rates of 1.1 to 1.4% versus 0.03% for email, 0.04% for Internet display ads, and 0.22% for paid search. May 2013” 2“
“In a USPS poll, 64% of customers said they valued the mail they received, only 36% of business owners believed customers valued their mailings.ddd November 2012 3
Before sending out the letters, calculate the highest possible response you can handle. You wouldn’t want to create the perfect pitch and then be unable to fulfil all the orders that come flooding in!