Direct mail is a pretty straight-forward medium for calculating your return on investment (ROI). But, to be successful, you need to do two things: 1) you must track results, and, 2) you need to do a little math. It sounds like a no-brainer. Track results, calculate success. Unfortunately, many small business owners are in a race to shovel direct mail marketing out the door without any forethought and no follow-up.
Note: Be sure to download my free spreadsheet for calculating direct mail ROI here, Calculate Direct Mail ROI In Excel and at the bottom of the article.
Tracking Results
Your methods for tracking results will vary, depending on how your direct mail is attempting to elicit a response, what you are selling and how, and whatever stages of consumer buying process the recipient is in. But, there are two key pieces of data you should be gathering: sales and responses. Sales are the dollar figures that can be directly attributed to the direct mail marketing campaign and are necessary for calculating ROI. Responses are actions the recipient took to contact you or continue the buying process, such as requesting more information, or visiting your website.
I’ll start with tracking responses, as in most situations, a direct mail recipient responds to your offer before making a purchase.
Tracking Responses
Tracking responses aren’t difficult and can be as simple as asking the prospect, “hey, how’d you find out about us?”
I’ve found it’s best to automate response tracking whenever possible, because all too often, small business owners and staff are either too timid, too busy, or simply forget to ask how the customer came knocking. You can use a variety of methods to automate tracking, such as providing a dedicated phone number to use in your direct mail, specifying a single point of contact, or setting up a personalized website or e-mail for each direct mail campaign. Then, simply count the number of calls, e-mails, website visits or requests for more information that each touch point receives.
Tracking Sales
Sales figures aren’t difficult to track either, but, like response tracking, will depend on your type of business and method of selling. If you take phone or online product orders, it is pretty easy to attribute individual sales using the same methods used for tracking responses. For the most accurate picture, you’ll want to track both: the gross profit as a dollar-figure of all sales attributable to the campaign, and also, the number of new customers or sales volume generated by the direct mail campaign.
For services businesses, things can get a little trickier, especially if your sales are high-dollar. Often there can be a long sales cycle of months or more to run through the consumer buying process and close a sale. So it becomes even more important that you pay close attention and track responses, leads and sales individually, over time. Also, if you run multiple campaigns in quick succession, or at the same time, be sure that you can parse responses, leads and sales between each campaign.
Do The Math
Math was never my strong-suit, so for those of you that get cold and clammy looking at numbers… relax. I’ll keep this nice and easy! Skip to the bottom of this article to download an MS Excel Spreadsheet containing an example direct mail campaign ROI calculations.
Calculate Total Campaign Expenses And Cost Of Goods Sold
To do this, simply add all expenses used in producing, printing and mailing the direct mail campaign. This figure is your [Campaign Expenses]. Your [Cost Of Goods Sold] is simply the expenses you incurred in producing the service provided to a customer, or, if you are selling products, the wholesale expenses you paid for the products that were then sold to customers.
Calculate Campaign Gross Profit
Add all sales in dollars that can be attributed to the campaign. This is your [Gross Profit].
Calculate Campaign Net Profit
Your net profit is what goes into your pocket after expenses and is calculated using the following:
[Gross Profit] – [Campaign Expenses] – [Cost Of Goods Sold] = Net Profit
Calculate Your ROI
Your return on investment is how much money you made back in profit for every dollar you spent on the direct mail campaign. ROI is calculated with the following equation:
[Net Profit] / [Campaign Expenses] = ROI
To calculate ROI as a percentage: [ROI] x 100 = ROI Percentage
Calculate Response Rate
Your response rate is the percentage of people who contacted you in some form after receiving your direct mail piece. The industry average is roughly 1%. To calculate, use the following:
[Total Number Of Responses] / [Number Of Pieces Mailed] x 100 = Response Rate
Calculate Cost-Per-Piece
To identify how much each individual mailing costs, use the following equation:
[Campaign Expenses] / [Total Number Of Pieces Mailed] = Cost-Per-Piece
Calculate Expense To Acquire A New Customer Or Sale
To find out how much it cost you to generate a new customer or sale from the direct mail campaign, plug in the sales volume you were tracking into the following:
[Campaign Expenses] / [Number Of New Clients or Sales Volume] = Expense Per Customer or Sale
Calculate Average Customer Or Sale Value
To find out how much you made per new customer acquired, or what you made per sale, use the following equation:
[Net Profit] / [Number Of New Clients or Sales Volume] = Average Value Of Customer or Sale
In Conclusion
As long as you track results and do the math, you’ll be able to quickly identify problem areas in your direct mail campaigns. Certainly, there are many other calculations you can run to distill data even further, but these are a good start for putting you on the right track, even if you’re simply marketing with postcards.
Download The Excel Spreadsheet! All of the above direct mail ROI calculations are included in an example direct mail campaign I’ve put together as an MS Excel spreadsheet. In the spreadsheet, you can adjust campaign variables to automatically calculate direct mail ROI, profit and more. Click on the link for the Calculate Direct Mail ROI Excel Spreadsheet.
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