“It is a fundamental rule of human life that, if the approach is good, the response is good.” – Jawaharlal Nehru
At least once a week I get an e-mail from someone asking me: “What’s considered a good response rate for direct mail?”
In some ways, it’s a meaningless, even absurd, question. Why? Because the only logical – and honest – answer can be: “It depends.”
What does it depend on?
The product… the marketing… the mailing list… the offer… the price… the economy… the terms… the guarantee… the cost of the mailer… even what’s in the news on the day the piece is mailed.
What I usually say to my e-mail correspondent is this: “What is your marketing goal?”
Many small-business owners want every mailing to make a profit – to generate $1,000 or $2,000 or $3,000 in sales for every $500 spent on it. On the other hand, experienced direct marketers, especially the large ones, are often content if a mailing brings in new customers “at cost.”
“At cost” means the company makes no profit on the initial orders the mailing brings in. A mailing that costs $10,000, for example, generates $10,000 in sales.
Why are experienced direct marketers often content to bring in new customers at cost? Because they know that, once they acquire a customer, they can make money on the “back end” – selling additional products to that same customer.
In fact, in most direct-marketing businesses, the bulk of the profits are made on the back end, not on the initial order (the “front end”). At least one major direct marketer told me they are actually happy to bring in new customers at a slight loss, because their back end is so profitable.
Depending on your goal for a mailing – whether it’s to acquire new customers at cost… double your money… or whatever – you need to do some calculations ahead of time to figure out the response rate you’re going to need in order for the mailing to break even.
First, you need to know your gross profit per unit sold – the selling price of your product minus what it costs you to buy or make it. Let’s say your product sells for $80, and it costs you $10 to make or buy. Your gross profit is $70 per unit.
Yes, there is the cost of shipping and handling. But for our purposes, I will assume you charge your customers for shipping and handling – and that the extra charge just covers the cost.
Next, you need to know the cost of the mailing. This is calculated by adding the cost of its four components: list rental, postage, printing, and “letter shop” (the process of assembling the mailing and bringing it to the post office).
For our example, let’s say it costs you $700 to mail 1,000 pieces. With a gross profit of $70 per unit sold, that means you’ll need 10 orders to break even – which is a one percent response rate.
(By the way, there’s a free online tool that can perform this break-even calculation for you: dmresponsecalculator.com.)
A one percent response rate may not sound great – especially if you’ve “heard” that the average direct-mail response rate is two percent. Well, that was never really true – and it is less true now. The two percent figure was, at one time, the average response rate for direct-mail packages selling magazine subscriptions. But the average response rates for other products… and other offers… were different. For instance, seminar promoters often got response rates from .25 to .50 percent… and sometimes as low as a tenth of a percent.
Not only that, but response rates overall are declining. One fundraising consultant told me that response rates for direct mail in the nonprofit field used to average three percent. Today, they are closer to one percent.
Why the decline? Consumers are bombarded by so much mail – and so many other advertising messages- that it’s more difficult to grab their attention. All the more reason to make sure you know what you are hoping to achieve with your offer before you test it in the mail.[Ed. Note: Master copywriter and best-selling author Bob Bly is the editor of ETR’s ETR’s Direct Marketing Masters Edition. a program to help you start your own successful direct-mail business. Sign up for Bob’s free monthly e-zine, The Direct Response Letter, and get more than $100 in free bonuses.]