Direct marketing (mail, telemarketing,
personal contact, etc) can be among the most
effective marketing tools for a small
business when properly utilized. On the
other hand, poorly designed, poorly executed
direct mail programs are frequently a waste
of time and money.
are some important differences between the
large and small mail campaigns. Typical
large company direct mail campaigns may mail
as many as 20,000 - 200,000 pieces. Usually
they are requesting a response involving a
customer cost of less than $100.
In addition, the company may have some name
recognition when the prospect receives the
mail piece. Frequently, the small business
has no name recognition, is selling a
product priced over $100, and does not have
a large marketing budget. The small business
must do some things differently.
Some planning secrets are: The key to small
business direct mail success is repeated
mailings to a quality list to build name
recognition among prospects who are likely
to be interested in your product.
Response rates may be extremely low in the
first mailing, but usually rise in the third
mailing and can continue to rise for several
more mailings to the same list. In addition,
the campaign is more likely to succeed if
the end objective is not a giant step for
the prospect. For example if you are
marketing services costing more than $1,000,
the response rate to sign up for the service
will probably be very low.
However, the response rate to attend a free
seminar will likely be ten times higher.
Then if you convert 25% of the seminar
attendees, you come out ahead of trying to
make the complete sale in the mail piece. If
you are marketing a product costing between
$100 and $500, you can try to make a get -
acquainted sale, but you should include a
discount or premium and a guarantee of some
sort to reduce perceived risk.
Now, there are two secrets in using
discounts or premiums. Establish an
expiration date for the discount. Design the
successive mail pieces so that the discounts
or premiums are getting smaller. Limit the
big incentives to the first three mailings.
Then make them smaller. So, how do you
decide if direct mail is likely to work for
you? Compare the benefit with the cost to
decide whether to try direct mail.
This comparison consists of pursuing the
Estimate the expected
first sale, and the value of a new
customer. For example, the benefit may
be a first sale of $500, which will
generate a $100 margin above cost
(economic benefit) for the company, and
your typical customer stays for three
years for an average total revenue
generation of $3000 at $1200 margin
Determine the budget
you can spend on the entire direct mail
campaign. Estimate the non-mail costs of
the campaign. These may be as high as
$600 to host a half day seminar, $1000
for a reasonable amount of mail piece
design, etc. Then, subtract these
non-mail costs from the budget to
estimate the mail budget. Divide the
mail budget by $5 to define the number
of prospects you can mail to.
The response rate is
likely to range between 0.5% and 5%,
depending on how the offers are constructed.
Estimate the number of customers resulting
from the mail campaign and then multiply by
the benefit from step 1. Alternately, divide
the total cost (step 2) by the number of
responses (step 4 multiplied by 1%) to
estimate the total cost of finding a new
customer. Compare the benefit to the cost to
determine whether direct mail is promising
In this analysis, you
will see that the cost of each response is
approximately $500 for a 1% total response
rate. So, if we define the benefit of a new
customer to be $100, then direct mail is not
promising. If the benefit is $1000 per new
customer, direct mail is marginal if the non
mail costs are $1000 or higher.
If the benefit is $1200
per new customer, direct mail starts to look
promising if we keep the non mail costs
below $500. As the total budget and the
benefit per new customer increase, mail
direct mail becomes more cost effective.
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