The 2% Myth
A common direct mail marketing myth is that unless a mailing gets a 2% response, it’s a failure. The truth is response rate alone does not tell the whole story.
Let’s say you’re selling a $2,000 water purification system and your profit margin is 40% on each unit sold ($800 gross profit per unit sold). You mail 1,000 postcards with a total marketing investment of $525.00 which includes the printing, postage and mailing services.* From your mailing you get 3 orders. If you only look at the response rate, you might consider this mailing a failure because the response rate was 0.3%.
However, if your look at your Return on Investment (ROI) you’ll see an entirely different picture. With marketing, it’s a good idea to calculate your ROI based on your gross profit, not your gross revenue. Let’s take a look at the ROI and see why…
The ROI formula is your Gross Profit minus your Marketing Investment divided by your Marketing Investment = ROI. ROI is normally expressed as a percentage so multiply your result by 100 to convert to a percentage.
Gross Profit: $2,400.00 (3 orders at $800.00 gross profit per order)
Marketing Investment: $525.00
Your Marketing ROI: 357%
As this example shows, response rate alone does not tell you whether your mailing was a success or not. By also tracking your ROI you’ll be able to make more informed marketing decisions.
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*Based on digitally printing a 5.5” x 8.5” postcard, with data supplied by client and mailing Standard Mail (postage rates as of 4/17/11).