It’s important to know how to measure the success of your direct mail marketing campaigns. Generating data is great, but how do you turn that data into metrics you can take action on?
The following six marketing metrics will help you do just that!
Metric #1 - Response Rate
Response Rate is simply the percentage of customers on your mailing list who responded to your direct mail campaign.
Formula:
Responses / Pieces Sent = Response Rate
Example:
100 Responses / 500 Pieces Sent = 0.2 = 20% Response Rate
Metric #2 - Conversion Rate
The Conversion Rate (sometimes called order rate or net response rate) is the percentage of prospects who took the desired action on your mailing piece. For example, redeeming a coupon or visiting your website to subscribe to an offer.
It’s likely that conversion rates in industries such as food or clothing won’t be as important of a metric as in other industries because response and conversion often happen at the same time. For example, a restaurant patron might respond by showing up for the 50% discount on the lunch time special and convert by using the offer at the same time.
However, businesses with longer sales cycles and higher-priced products or services (auto, legal, finance, etc.) should pay close attention to this marketing metric.
Formula:
Number of Orders / Responses = Conversion Rate
Example:
10 Orders / 100 Responses = 0.1 = 10% Conversion Rate
Metric #3 - Cost Per Acquisition (CPA)
How much does it cost to obtain a new customer? This is one of the most critical marketing metrics to understand.
Your CPA, sometimes referred to as “cost per lead” or “cost per order,” gives you this critical information.
Pro Tip: Compare your CPA for direct mail channels to other marketing channels to determine which drives the highest ROI at the lowest cost. You’re looking for efficiency here.
Formula:
Campaign Cost / Number of Orders = CPA
Example:
$500 Campaign Cost / 10 Orders = $50 CPA
Metric #4 – Average Order Value
How much average income did you earn on each sale from your direct mail campaign? Average order value tells you your average profits throughout your entire direct mail campaign, rather than on each individual job.
Formula:
Revenue / Number of Orders = Avg. Order Value
Example:
$10,000 Revenue / 100 Orders = $1,000 Average Order Value
Metric #5 – Return on Investment (ROI)
ROI is one of the most valuable marketing metrics to utilize because it allows business owners and marketers to measure the success of a campaign quickly and easily.
Formula:
(Revenue – Campaign Cost) / Campaign Cost = ROI
Example:
($10,000 Revenue – $500 Campaign Cost) / $500 Campaign Cost = 19X ROI
or $19 earned for every $1 spent
Metric #6 – Lifetime Value (LTV)
This long-term metric can be the most accurate way to measure the overall success of your marketing efforts. However, it can be a complicated number to determine and varies between businesses and industries.
Consider this example:
Your business sends a $10 discount offer to 100 people at a cost of $500.
Your mailing campaign immediately generates ten new customers for a gross profit of $100.
That’s a $400 loss.
However, if the average lifetime value of your customers is $200 over one year, you’ll have earned a $1,500 profit and a 3X ROI.
Example:
$200 LTV x 10 New Customers = $2,000 Revenue
$2,000 Revenue – $500 = $1,500 profit and a 3X ROI.
You can see now why Lifetime Value (LTV) is worth considering as a metric, but how do you factor it? Just follow the five steps below.
Step 1: Average Purchase Value
- Divide total revenue in a period of time (usually one year) by the number of purchases over that same period of time.
Step 2: Purchase Frequency Rate
- Divide the number of purchases by the number of unique customers over the same period of time.
Step 3: Customer Value
- Multiply the average purchase value by average purchase frequency rate.
Step 4: Average Customer Lifespan
- Average the number of years a customer continues purchasing from your company.
Step 5: Lifetime Value (LTV)
- Multiply customer value by average customer lifespan
This LTV formula will determine what you can expect, on average, from each customer throughout their relationship with your business.
Conclusion
Now that we’ve covered the major marketing metrics you need to assess the effectiveness of your direct mail campaigns, let’s take a look how you can improve your campaigns.
Whether you’re a direct mail power user or just getting started, explore other resources from our blog below, click here to learn more about how we can help execute your next direct mail project, or contact us today.
Bibliography:
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