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Measure and optimise: the key to direct marketing success

December 01, 2012

Henry Ford once said: "50 per cent of the money invested in advertising is wasted. But you never know which half it is." While this might still apply for traditional advertising, it certainly isn't true for direct marketing! After all, direct marketing is measurable and can thus be optimised – especially when it comes to mailings. The prerequisite for this is that clear, measurable objectives must be defined in advance. Once they have been determined, key performance indicators – also known as KPIs – help you to measure success.

Why KPIs?
KPIs are important for measuring the success of a mailing or direct marketing campaign. They are also useful for optimising the next mailing campaign. This could involve optimising costs or increasing the number of responses. It also makes sense to compare past mailings with the latest campaigns as well as to compare them with other communication measures, e.g. mailings vs. online banners or mailings vs. e-mailings. This type of comparison provides important information for future channel planning, i.e. for optimising how marketing funds are invested.

If you want constructive results when comparing two or three consecutive mailing campaigns, then the same parameters – such as the target group or offer – need to be compared. All other components need to stay constant as well, since they can also influence the success of a mailing campaign. If different communication channels are used, then there should be no deviations in the offer, the design of the campaign or the target group.

If an indicator such as the response rate is compared, it must be kept in mind that not all response rates are the same. After all, response rates can vary significantly based on whether the mailings are sent to new or existing clients or to clients in the B2C or B2B sector. Offers and enhancers can also have a tremendous influence on the response rate – the better the offer, the higher the response rate is likely to be.

The most common indicators
So what are the most common indicators? And what should you keep in mind when using them? Here's an overview: Response rate The response rate indicates how many addressees reacted to the direct marketing campaign. It is stated as a percentage and is calculated as follows: (Number of responses ÷ number of mailings sent out) x 100
Rate of return
The rate of return indicates the number of mailings that did not reach the recipients due to incorrect address data. The rate of return should not exceed 5% for mailings to new clients and 1% for mailings to existing clients. It is calculated as follows: (Number of returns ÷ number of mailings sent out) x 100 

The rate of return is THE indicator for address quality. The better the address data, the lower the waste and thus the associated costs. Checking the addresses prior to each mailing thus makes sense in two regards. Asendia would be glad to assist you with checking as well as improving the quality of your addresses.

Cost per piece mailed or cost per contact
This calculation is simple: Total cost of the direct marketing campaign ÷ number of mailings sent out When comparing different communication channels, both the costs and benefits should always be examined in detail. One example is mailings vs. e-mailings. 

Cost per lead or cost per interest
The formula for this calculation is: Total cost of the direct marketing campaign ÷ number of interested parties gained The cost per lead or cost per interest is very different depending on the business sector. The costs tend to be higher for B2B mailings involving capital goods, since the print runs tend to be smaller in this sector. It also takes significantly more time to get a qualified and promising lead. For consumer goods or simple services, the cost per interest is generally low. On the one hand, this is because consumers in these sectors are more willing to try new things. On the other hand, there is also a much larger target group in the consumer goods / services sector.
Cost per client
The formula is: Total cost of the direct marketing campaign ÷ number of new clients The cost per client allows you to calculate the financial outlay needed to acquire a new client. It is important to keep in mind that this amount will always be higher than the amount needed to retain existing clients. The cost per client may differ greatly depending on the sector, product or service and budget. As a rule of thumb: the higher the expected turnover, the higher the cost per client is also likely to be. 

Cost per sale or cost per order
This indicator allows you to calculate the average costs incurred per sale or order associated with a direct marketing campaign. This is an important KPI from a business standpoint because it reveals the relationship between costs and earnings. 

Two of the other most common indicators are return on investment (ROI) and the break-even point. The ROI is calculated as follows: (profit per product x quantity ÷ total cost of the direct marketing campaign) x 100. The formula for the break-even point is: (total cost of the direct marketing campaign ÷ profit per order) x 100 . These indicators are not suitable for deriving specific optimisation measures, but they do demonstrate rather quickly whether a mailing campaign was financially successful or not.

Only a 20% response? We expected more!
So what is a good response rate for a mailing campaign? There's no general answer to this question since it depends, on the one hand, on whether the mailing was sent to potential or existing clients. Secondly, you also have to consider whether the offer was attractive and relevant for the target group. To put this in more concrete terms: a response rate of 4% or higher is a good value for a mailing to existing clients. For mailings to potential new clients, on the other hand, the campaign can be said to be a success when the response rate exceeds 0.1%. As stated earlier, this greatly depends on the offer and the defined target group.

By consistently measuring your mailings based on clearly defined key performance indicators (KPIs), you will be able to optimise them on an ongoing basis. As a result, you will be able to boost your success with each mailing or direct marketing activity.

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