Figure Out If Your Mailing
The best way to get more customers is to mail them something like a new tie or a 10 pound box of Godiva Chocolate. Right? But those gifts aren’t really feasible, are they? No, I didn’t think so.
I agree, direct mail is one of the best ways to get customers. So how about if we simply mail potential customers a few nice letters, or a few post cards? 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, more orders per pieces mailed) your mailing works.
Conversely, when your market (your most likely customers), isn’t a well-focused group, when they are not 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. Let’s take a closer look at the costs, and see if we can figure out how to determine if your mailing will be successful before you spend any money.
Rule number one: A mailing (letter and brochure) to a group of prospects will cost you roughly half dollar for each piece.
Face it. It’s 37¢ just for postage, plus the list can run 10¢ for each name and address record. Plus envelope, letterhead, brochure, add to that mailshop services to put it all together, and presto: it’s expensive.
What does all this mean? It means if you mail out 1,000 pieces, it’s gonna 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? Suppose you mailed 1,000 pieces and you made $750? Then you mailed 10,000 pieces and made $7,500? Now you can roll out and mail to the rest of the list. If the list is 2,000,000 records, 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 comes from how much income you make on each mailing. And that will depend on your A) response rate, and B) your gross revenue - and C) your gross profit per sale. Here’s how to figure it all out.
Sidebar
Gross Revenue = Your total income
Gross Profit (GP) = The money you made after you deduct the cost of goods (COG) and fulfillment. Also defined as total revenue less cost of goods = gross profit
Fulfillment = Cost of packaging and shipping orders
Percent Response = number of people who buy your product from the number mailed expressed as a percentage.
Rule Two: Work the numbers backwards.
To figure out if a mailing will be successful, you’ll need to know what percent response you must get to show a profit. For example, let’s create a test mailing of 1,000 pieces - it’s easy to work with this number:
Test mailing: 1,000 pieces.
Cost of mailing: $500
Your product sells for: $100.
Product (and fulfillment) costs: $50.
Gross profit you make on each sale: $50.
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…
Callout
Gross Profit = Money you still have in your pocket after buying the goods and shipping them to your customers.
Calculation Sidebar
Ten sales is $1000 in revenue,
Product cost and fulfillment is $500
Gross Profit on 10 sales is $500.
Rule Three: Use what you have learned to make money.
Now, let’s get profitable. Tweak and fine tune your direct mail package and offer, to make it draw better. Get just one more person to order, and here’s what happens...
If 11 people order, you make money. This is an 11% response rate and you are profitable. 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 every purchaser after that, you make another $50. Is it as simple as that? Yes, yes it is. At 1.5% response, 15 people order, you make $250.
Rule Four: Here's how to figure out if your mailing will be successful before you mail anything.
Just like we did above, figure out the number of people who must order for you to break even. Base your mailing costs on $500 per thousand pieces mailed: if you mail 1,000 pieces, how many units will you need to sell to cover the $500 in mailing costs? Convert that into a percent response = number of people who need to purchase. Then see if that percent is a reasonable figure.
Let’s take another example. A lot of people ask me if I sell my book, How To Market A Product for Under $500, through direct mail. I tell them no. Here’s why: I mail 1,000 pieces at a cost of $500. My book sells for $30, and after fulfilling each order I make $10 profit on each sale, so I’d need 50 sales (50 x $10 = $500) to cover the cost of the mailing and break even. I’d need a 5% response rate. But, I don’t think I can hit that - a 5% response is very unlikely. This is why most products selling for twenty or thirty dollars won’t work for solo direct mail offers. Which brings us to Rule 5:
Rule 5: Be realistic on what percent of people you are mailing to will order.
Success is based on a 1/2% to 1-1/2% order rate to break even. Anything higher is unrealistic. While it may happen, it’s unlikely. You need to be profitable at 1/2% to 1-1/2% response.
Rule 6: Here are the real ways you make money in direct mail.
First, find a source for quality mailing lists. Next, create a mailing that’s profitable - no easy task. Test products, offers, lists - this is the hardest part! 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. Then, how long is the list?
Once your offer tests successfully and it’s profitably mailing to small segments of your list, increase the size of your mailings. As larger segments of the 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 your test mailings. The way you make money - with little risk - is to send the same mailing piece to the rest of the people on the same list.
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 was 2.5 million records? This is the way you make money in direct mail - you duplicate your success. Make sure your mailing is scalable, because if it works in the small scale - testing - it’ll work in a large scale. The same package to the same list = same results.
Finally, we’re not finished making money yet from people who ordered. If you supplied a great product and great service to people who order, 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 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 just mail to them. Your response rate will soar. So will your profit. Hey, if this happens, send me something nice. My favorite color is blue, my favorite car… a Corvette. Thanks.
Jeffrey Dobkin, author of How To Market A Product For Under $500!, and Uncommon Marketing Techniques, is a specialist in direct response copywriting. He writes powerful, response-driven sales letters, TV commercials and scripts; persuasive catalog copy; and exceptionally hard-hitting direct mail packages that increase sales. He also analyzes direct marketing packages, ads, catalogs, and campaigns. Mr. Dobkin is an acclaimed speaker and a direct marketing consultant. Call him directly at 610-642-1000 for free samples of his work.
