Making Direct Mail Work

This is the most common question in direct mail.

Curiously it is in fact the reverse of the question that experienced direct mailers ask.   Those who have been running direct mail campaigns for some time tend to ask:

What percentage response rate do I need in order to make a profit? 

This question leads to a second question - and the answer to that tells you if your mailing is likely to work.   

Here's how it works.

What percentage response rate do I need in order to make a profit?

Generally speaking it costs around £400 to send out 1000 mailshots.  Of course that price will rise if you are sending out really heavy and expensive catalogues - but assuming you are mailing (say) a sales letter and an A3 brochure folded to A4, then the price is likely to be somewhere around 40p each or £400 per thousand.

So we ask this question:

Assuming that your research, development and production costs have been covered, how much will it cost you to make each item you are selling, and to send it out in response to an order.

Obviously this question is answered differently depending on each product or service being sold, but let's just take one example.  You have developed some software.  We assume for the sake of this debate that you have done the work in writing the software, you have bought in 1000 boxes to pack it in (to get a decent price), plus 1000 jiffy bags (or whatever you are sending it out in).  If you are employing someone to pack the goods up, you cost that in as well.

Let's say that the total cost of replicating the software onto a CD, buying the box, putting the CD in the box, and the box in the bag, buying the bag, and paying for the postage - all of that - comes to £10.

You feel that you can sell the software for £50 - so you are making £40 profit on each sale.   (Obviously that is not £40 in your pocket, because we have nothing here for rent, rates, invoicing, chasing debts, R&D and your salary, but it is a sort of break-even point from the point of view of the promotion.)

Now we  know two key figures - £400 per thousand for the mailshot, and £40 profit per sale.   So clearly 10 sales out of a 1000 mailshot brings you break-even.   That is 1%.

Of course no one would work for this rate of return because, as we noted, there is no profit at this level.   But you might feel that since you will be doing all the work yourself, or because running these orders will be just one small part of your team's work, 2% would be acceptable.

So your target is 2%.  Less than that, and you won't do it, more than that, and you'll be happy.

Which leads to the second question. Is this percentage likely?

This is harder to answer because it depends on the market, your competitors, the charge you are making, and so on.   But in trying to answer this you might like to consider these factors.

1. The higher the price, the lower the response rate.   You will sell more products that cost £20 than those that cost £1000. 
2. Response rates of 2% for products costing around £30 are not uncommon.   
3. Response rates do vary according to the type of list you use.  If you are selling a new product or upgrade to people who have happily bought from you before, your response rate will be much higher than if you are doing a first time mailing people who have never heard of you.
4. One of the biggest influences on a response rate is the creative aspect of the work.  In other words one set of words and/or one design might bring in a 3% response rate, whereas a different text or design selling the same product at the same price might bring in just 1%.

The highest response rate I have achieved on a product costing under £25, when mailed to people who had not bought before, is 11.5%.   The lowest, of course, is zero.

What to do if the response rate falls below the level I want?

That is what this web site is about.  Click on "how to do it" to follow the next step.