One of those channels is direct marketing. You know your direct mail marketing efforts play a big part in your success, but how do you prove your strategy is working—or not working? How much of a role does science play in it? Let’s talk about science as it pertains to marketing. Marketing science is the pursuit of the truths behind a specific product, service, or campaign. It’s the proof behind your direct mail strategy.
Are you trying to understand marketing science to get ahead of your competitors? We’re here to help. Here’s your easy to understand, non-techie guide to direct marketing science.
1. Determine Your Direct Mail Marketing Goals
Before you can decide if your direct mail marketing campaign was a success—or not—you’ll need to decide what goals you want to achieve with it. Do you want to increase sales? (Always popular.) Are you looking for new leads? Maybe you’re trying to increase your brand awareness. Once you answer these questions, you can determine what your key performance indicators (KPIs) are. These are the metrics that let you know if a direct mail campaign reached its goals.
There are plenty of direct mail metrics you can use to measure the results of a direct mail campaign. Here are some of the more essential ones that will give you an accurate appraisal of your campaign’s performance.
Your response rate is the percentage of people that responded to your direct mail campaign. Just take the number of responses divided by the total number you sent, and that’s your response rate. If you sent 5,000 pieces in a direct mail campaign and you received 400 responses, your response rate would be 8%. Nice job.
According to an industry report, the direct mail response rate in 2018 was almost 5% for prospect lists. This is significantly higher than the previous year and it’s the highest figure in the report’s history, dating back to 2003. The direct mail response rate for house lists was 9%. In case you’re not aware, let’s define these two types of lists.
Prospect List. A prospect list is a compiled, comprehensive list created by compiling data from a variety of sources. They may come from a phone book, census data, credit agencies, government data, etc.
House List. A house list is your brand’s current mailing list. These are your people. They’re already your customers. Always place a strong emphasis on keeping them—aka retention marketing.
Be sure to track every response method on the mail piece. You might have a telephone number, a website address, a QR code, or another form of response. Account for all of them.
When one of your direct mail responders places an order because of the mailer, you’ve converted someone into a customer. The number of orders divided by responses is your conversion rate. So if we look at that 5,000-piece sample mailing again, and you received 10 orders out of 400 responses, you’d have a conversion rate of 2.5%. That’s good.
Industry figures show that a 0.5 to 2% conversion rate is about average for a direct mail campaign. Keep in mind if you’re selling less-expensive impulse items (let’s say pizza or an article of clothing), your conversion rate won’t be as important. In this instance, the response and conversion will likely happen at the same time.
Cost per Acquisition (CPA)
Naturally, you’ll want to know what the total dollar amount was to acquire a customer. So, just take the total cost of your campaign (all your marketing expenses) and divide it by the number of customers you acquired. Here’s an example. Let’s say you spent $5,000 last month on a marketing campaign. And you acquired 500 new customers as a result. That means your CPA was $10.
According to marketing guru Neil Patel, this is the one marketing science metric that can determine your company’s fate. That $10 number doesn’t mean much in itself. For instance, if you were selling luxury car brands, you’d be very pleased. Forget that, you’d be ecstatic. If you’re selling organic food online, however, you’re going to have a much different outlook. Let’s do the math. Your average order is $25. The markup is 100%. That means you’re making $12.50 per sale and you’ll need to account for $2.50 per customer for expenses (salaries, office space, etc.). See how that $10 CPA doesn’t work out so well for you? You’re only breaking even.
Note: Compare the CPA of your direct marketing efforts vs. other channels to see which performs better.
Return on Investment
This is the most important KPI, as it will provide you with the figure you need to determine if your campaign was successful. To figure out your ROI, take your revenue, subtract the cost of the campaign and divide it by the campaign cost. Yes, you’re using the same figure twice.
It looks like this: (Revenue – Marketing Campaign Cost) / Marketing Campaign Cost = ROI
So if you made $1,000 in revenue and the campaign cost you $100, your number would be $900. Then if you divide $900 by $100, your ROI would be 9%.
Calculate Your Customer’s Lifetime Value (CLV)
Metrics provide instant feedback, but don’t forget about the lifetime value of your customers. CLV is the projected revenue that you’ll generate from a customer during their lifetime.
So what happens if a customer makes more than one purchase during their lifetime? What if they stop buying from other grocers completely and only buy your organic selections? That complicates the system, doesn’t it? The CLV is designed to fix this.
Let’s say it costs you $10 to acquire a customer, but that customer spends $25 over and over again. If you’ve adopted a retention marketing strategy, maybe they become a regular customer for the next 20 years. How do you account for that? Well, you’ll have to project. This is marketing science, not clairvoyance.
Kissmetrics did a case study to calculate the lifetime value of a Starbucks customer. The popular coffee company keeps opening locations worldwide (2,100 stores will open in 2019), so they must be using customer information that tells them this is a good idea. Using sales numbers from five sample customers, you can figure out what the CLV is for an average Starbucks patron. HubSpot provided a great rundown of the process.
- How much do they spend per visit? Figure out the average purchase value. The average Starbucks customer spends $5.90 per visit.
- How often do they visit each week? As it turns out, it’s 4.2 visits per week. Now that’s loyalty. This is the average purchase frequency rate.
- What’s the customer’s value? Once you know how much they spend and how often they visit, you can determine their value. In this study, it was $24.30 per week.
- What’s the lifetime of a customer? The study listed this value at 20 years, although it didn’t specifically state how it arrived at that number. You probably don’t want to spend 20 years determining how long a customer visits Starbucks, so here’s a shortcut. Divide one by your churn rate percentage.
- What’s your customer’s lifetime value? First, multiply your average weekly customer value by 52 (weeks in a year). Take that number and multiply it by the customer lifespan value (the Starbucks value was 20). This will give you your CLV. The lifetime value of the average Starbucks customer is $25,272.
Keep in mind, CLV is not an exact science. That’s because we’re not rational beings. There are too many variables. You can’t always know what a customer’s going to do. So you project the outcome based on your available information.
Set Your Tracking Methods
Speaking of information, let’s talk about tracking. You’ll need this valuable information for your brand’s present and its future. When you set up a direct marketing campaign, make sure every point of contact is unique and trackable. That way you’ll know specifically where each phone call, website visit, and coupon redemption came from.
It’s easy to measure the response rate from your direct mail campaign with call tracking. You can create a unique phone number for every campaign and track the phone calls in a variety of ways:
- Establish a dedicated toll-free phone number that auto-forwards to your business line. That way you can track exactly how many calls come in. This will provide you with your telephone call response rate.
- Hire a call tracking software company. You’ll likely have the ability to listen to the calls your business receives, plus you’ll get other reporting data.
- If you publish your regular business number on your campaign piece, advise your staff in advance. This is crucial. They’ll need to match coupon codes with the direct mail piece it appeared on.
Marketing master and author Seth Godin reminds us not to put people on hold and tell them their call is important. If it were important, we would’ve answered it. Customer inquiries are like Cronuts. They go stale quickly. If you’re going to use a phone number as a form of response on your direct mail campaign, prepare to properly handle the volume.
Trackable URL (pURL or QR Code)
Create a campaign-specific website URL that goes to a custom landing page on your website. This could be something like yourwebsite.com/campaign1 or campaign1.yourwebsite.com. Then you can use your Google Analytics account or whatever you use to keep track of your website stats to record page visits.
If you really want to do it right, use a pURL. This is a personalized URL that’s unique to each person who receives the direct mail piece. So, a sample pURL would look like yourwebsite.com/bill-brown. A QR code will accomplish the same thing. If it sounds like an impossible amount of work, it isn’t at all. You can establish this using variable data printing. A direct mail company like MSP makes it easy to integrate your digital marketing with your direct mail campaigns. Working with a knowledgeable partner makes all the difference.
Combine digital marketing with direct mail.
Coupon Code or Texting Shortcode
With a coupon code, your customer can redeem it any way you allow—over the phone (as we discussed), in-person at your store (if you have a physical location), or entered into a form on your website. You could also create a texting shortcode unique to each campaign. Have you ever received a message that read something like: “Enter our drawing for your chance to win a new car. Text WIN to 12345 now!” The five-digit number is the shortcode.
Use A/B Split Testing
A/B split testing involves examining two versions of a direct mailing. The versions are the same except for one element. This allows you to determine the effectiveness of each. You could test lists, offers, formats, envelope headlines, colors, photos, etc. The most common elements to test are offers and lists. Pick one element to make it simple. That way it will be much easier to track the winning variable vs. its nearly identical counterpart.
Naturally, the goal is to determine which one worked the best. Which one had the better response rate or the most conversions? Which one produced the greatest ROI? Use the above-mentioned methods of tracking your results, making sure each of the versions has its own unique landing page URLs or coupon codes.
Need some ideas? Here are a few popular options:
- Test dollars off vs. percentage off.
- Try different envelope sizes. Do you usually use the same size? Mix it up and see how it’s received.
- Compare a free credit offer vs. a free gift certificate offer.
Multi-variable testing is a bit more complicated than A/B split testing because you’re testing multiple elements at one time. For example, you could test three different lists with two offers and several formats, all in one direct mail campaign. If you have a variety of ideas on how to improve your next campaign and you aren’t sure what components are working (or not), multi-variable testing is a good option. Just remember, the more variables you introduce, the smaller the test sets are. That means your outcomes will be less certain.
Adopt a Data-Driven Marketing Strategy
By now you understand how important data is in marketing science. Every marketing campaign has known and unknown elements. Marketing science represents those elements that are measurable. For example, a high-touch direct mail campaign will be better received if the mailing list addresses are accurate and the recipients want to receive your content. Plus, the response rate will be higher if the recipients are already familiar with the company the direct mail is coming from as opposed to some strangers contacting them.
If you’re interested in the science of marketing, you’ll want to adopt a data-driven marketing strategy. This will ensure that you’re marketing to the right consumer at the right time under the right conditions.
Apply Direct Marketing Science with Direct Mail Panorama
Managing your direct mail programs can be difficult. If you want more control and a better understanding of them, consider a game-changing solution: Direct Mail Panorama. This technology-enabled software from BlueSky ETO streamlines and manages your high-volume direct mail campaigns so you have a clearer understanding of what’s happening and more control over the entire process. You get a panoramic view if you will. This allows you to improve upon each campaign. Think shorter production times and better engagement numbers.
Direct Mail Panorama is the future of direct mail management. Do you want to learn more? Contact a representative today to talk about the possibilities.
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