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 happens on the evening news the day your piece is mailed.
My usual response is to ask my e-mail correspondent: “Well, what is your marketing goal?”
By that I mean, are you hoping your direct mail will make a profit—that is, generate $1,000 or $2,000 or $3,000 in sales for every $500 spent on the mailing?
Many small business owners want that kind of return or better. They want direct mail to generate an ROI that’s some multiple of its cost.
On the other hand, traditional direct marketers, especially large ones, are often content to have a mailing bring in new customers “at cost”.
By “bring in new customers”, we mean getting strangers—whose names appear on the mailing lists we rent—to place their first order with the company.
By “at cost”, we mean the company makes no profit on the initial order, e.g., a mailing that costs $10,000 generates $10,000 in sales.
Experienced direct marketers are 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 traditional direct marketing businesses, the bulk of the profits are made on the back end, not on the initial order, known as the “front end.”
At least one major direct marketer has told me they are actually content to bring in new customers at a slight loss, because their back end is so profitable.
So whether your goal is to acquire new customers at cost, double your money on the mailing or whatever, you need to know the percentage response required to break even.
For instance, if your gross profit is $70 per unit sold, and mailing a thousand pieces cost you $700, you need 10 orders to break even—a 1% response.
The gross profit on your product is the selling price minus the cost of goods.
If 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.
The cost of the mailing is calculated by adding the cost of its 4 components: mailing list rental, postage, printing, and “letter shop”—the cost to assemble the components of the direct mailing and bring it to the post office.
These 4 expenses—list rental, postage, printing, and letter shop—are “recurring costs”, which means you incur them every time you mail.
“What about the fee I paid my copywriter and graphic artist?” I am often asked.
These are one-time charges and are typically not incorporated in the break-even calculation.
Rather than go through the calculations here, let me send you to a free online tool that can perform this break-even calculation for you
By the way, a lot of people also ask me: “I’ve heard that the average direct mail response rate is 2%. Is that true?”
It was never really true—and is less so now.
The 2% figure was, at one time, the average response rate to direct mail packages selling magazine subscriptions.
But that was for magazines only.
The response rates for other products and other offers were different.
For instance, seminar promoters often got response rates from 1/4 to 1/2 percent and sometimes as low as a tenth of a percent.
And, response rates overall today are declining.
One fundraising consultant told me that response rates for direct mail in the non-profit field used to average 3%.
But today, they are closer to 1%.
Why the decline?
Consumers are bombarded by so much mail and so many other advertising messages competing for their attention that it’s more difficult to grab their attention.
Bob Bly is the author of “World’s Best Copywriting Secrets” and has written copy for more than 100 companies including IBM, Boardroom, Medical Economics and AT&T. He is the author of more than 75 books and a columnist for Target Marketing, Early To Rise and The Writer. McGraw-Hill calls him “America’s top copywriter”.