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How to Track ROI of Your Direct Mail Campaign
In a world of on-demand digital marketing, direct mail campaigns still offer attractive returns, particularly if you utilize handwritten mailers (more on that later). Digital marketing offers the benefit of real-time metrics and user-friendly dashboards. Direct mail, by nature of its analog, paper transmission, isn’t as easy to track. So how can you go about computing your return on investment?
If your direct mail campaign is your only active marketing effort, then it’s quite easy. There’s a simple ROI formula you can use to compute your gains or losses. If you’re running direct mail along with other marketing methods, you’ll need some way to discriminate which portion of your sales come from your direct mail efforts. You can do this by asking new customers where they learned about you, noting this in your CRM. You won’t get perfect numbers, but you’ll get ballpark estimates that are close enough.
Before we get into the meat of the method, it’s worth noting why computing your return on investment is so critical.
Return on Investment is a Measure of Success
ROI, or return on investment, expresses gains or losses as a percentage of your total investment. Computing the ROI for each of your marketing methods lets you know how profitable each one is and provides a basis for comparison. The higher your ROI for a given marketing channel, the more efficient that method is for making you money.
There’s a secondary benefit as well. Tracking ROI consistently allows you to refine campaign performance over time. You can tweak messaging, refine your audience, and then see whether the changes result in better or lower than average performance. This sort of incremental improvement is only possible if you can measure against an established baseline.
When you know the return you can expect on your direct mail campaigns, you can better budget upcoming efforts and work these percentages into your overall marketing strategy. Here’s how to work out your returns.
The Simple ROI Formula That Reveals Campaign Performance
Computing the return on investment for a direct mail campaign first requires careful expense tracking. You need to know what you’re spending to determine whether your revenues exceed your costs.
Direct mail costs to track include writing and design, image procurement, printing, envelopes (if required), and postage. If you’re paying for a mailing list, you should include those expenses. If you’re mailing to leads you generated, you’ll want to apply some percentage of your lead generation expenses to the campaign’s cost.
Once you know how much your direct mail campaign costs, you’ll use the following ROI formula to determine the percentage gain or loss that resulted.
((Total direct mail campaign revenue - Total campaign costs) / Total campaign costs) x 100 = ROI
Let’s fit some real-world numbers into the formula to understand how it works. Let’s say your latest campaign cost $1,000 and made $1,500 in revenue. The ROI formula math would look like this:
((1,500 - 1,000) / 1,000) x 100 =
(500 / 1,000) x 100 =
.5 x 100 = 50
ROI = 50%
You can see that the campaign realized a 50% return on investment. This is a conservative estimate. Direct mail campaigns can do significantly better than this when you get your messaging, audience, and format right.
A SECOND METHOD FOR COMPUTING RETURN ON INVESTMENT
If you’re an omnichannel marketer, you may find it difficult to accurately separate the total revenue percentage attributable to your direct mail campaigns. If that’s the case, you can still estimate your return on investment by making some educated guesses and then refining them over time using customer surveys and other data.
This method requires you to estimate your mailings’ response and conversion rates. Response rate refers to the number of recipients that read your mailer and then contact you. Conversion rate then quantifies the percentage of those people that become customers.
If you’re a seasoned direct mailer, you likely already have fairly accurate numbers established. If not, you can use industry averages as a starting point. For conversion rate, you can use existing sales figures to work out how often new contacts convert into sales.
Here’s how it works. First, take the total number of mailers you’re sending and compute the total number of expected responses based on your response rate. If you’re mailing 10,000 pieces with a 3% response rate, here’s the math.
10,000 x .03 = 300
That’s 300 responses out of 10,000 mailers sent. Now compute your total expected sales. If your sales staff generally manages a 25% conversion rate then you’re looking at:
300 x .25 = 75
Given your starting assumptions, you can expect 75 new customers resulting from the 10,000 mail pieces you sent. Now, what are those customers worth to you? Multiply 75 by the average revenue that new customers bring your company. Let’s say that your average gross margin per customer is $200. Doing the math, we get:
75 x 200 = 15,000
This tells you that you can expect to make $15,000 in gross revenue from your direct mail campaign. All that’s left to do now is compare that figure to your total costs. To do this we can use the same ROI formula from earlier. Let’s say our campaign cost $7,500.
((15,000 - 7,500) / 7,500) x 100 =
(7,500 / 7,500) x 100 =
1 x 100 = 100
ROI = 100%
Based on our estimates, we can expect a 100% return on investment on this direct mail campaign. As you run campaigns you may find that your initial response and conversion rate estimates were too low or too high. Correct for this over future campaigns and in no time you’ll know exactly what you can expect to make given a specific mailing size.
SEE ALSO: 10 Sales Tips for New Insurance Agents
USE HANDWRITTEN MAILERS TO MAXIMIZE YOUR IMPACT
As we said, your response rate measures the percentage of recipients that contact you, but there’s another metric that precedes responses. Your open rate measures the number of recipients that read your mailer. A low open rate guarantees a low response rate, so anything you can do to boost your open rate will pay dividends for your return on investment.
Handwritten mailers boast a 99% open rate. That means that 99 out of 100 people will engage with your sales messaging. Why? Because handwritten notes feel special and personal, and this makes them stand out from standard mailers.
Simply Noted allows marketers to send out thousands of handwritten mailers using our state-of-the-art handwriting machines. They use real ballpoint pens and carefully-crafted handwriting fonts to replicate the feel of an authentic handwritten card.
Handwritten direct mail can dramatically boost your campaigns’ return on investment. Want to learn more? Give us a call!