What’s the most cost-effective way to increase the profit on each mailshot?
There are only three ways of increasing the profit on your mailings. They are
- Cut the cost of the mailing list
- Cut the cost of the whole mailing
- Increase the number of replies you get.
What I do in this article is compare the result you get in each three cases.
I’m going to make some assumptions, in order to give some realistic figures – you can of course change the assumptions – but let me assure you the prices and percentages I am talking about here are very realistic, and the sort of figures I see everyday working in direct mail.
Here are my assumptions:
- That the mailing costs 40p per pack (£400 per thousand) – including postage, labour, envelope, and mailing list.
- That of this 40p the mailing list costs 6p (£60 per thousand) each time you mail.
- That you get a 1% response rate (10 replies from a 1000 mailing)
- That you make a profit of £100 from every reply. (This of course is the figure most likely to change, but I need some sort of example here.)
Now let’s take our three scenarios – working with the mailing list, the whole mailing, and the response rate.
a) Cutting the cost of the mailing list
Imagine this scenario – you find a mailing list that is free. Maybe someone gives it to you, or you download it from the internet from a government web site or an on-line directory.
This looks like a good saving – a mailing list might cost you anything from £60 per thousand upwards. But the problem is that if just 5% of that data is wrong, then all your savings have gone – not just because of the cost of the mailing list, but because every time you post to a wrong address it costs you the postage, envelope and labour charges – plus the cost of your brochure and letter.
What we have to remember is that “wrong address” not only means “gone away” – it can also mean an address in which there is a change of name of the organisation, or a selection error (in which the company is wrongly listed as having 50 staff, whereas it actually has 5, or the school is listed as specialising in the arts, whereas it in fact lost its specialist status a year before).
Now that 5% figures is about right when you are saving £60 per thousand on a mailing list – if you are saving £120 per thousand on the list then you can afford 10% to be in error before you start losing money. If you save £30 per thousand, then if the extra error rate is over 2.5% you have lost all your saving.
Additionally your sales are going down. Yes you are saving a spot of money – but let’s take a reasonable scenario.
- Mailing list A costs you £60 per thousand.
- Mailing list B costs you nothing – but has 3% more errors than list A.
By the figures above Mailing list B is a better deal – you have still made a saving of about £20 per thousand (the other £40 being taken up in the cost of mailing the 5% wrong addresses. But supposing one of those wrong addresses is of an organisation that would have bought from you had you mailed them correctly. You’ve in fact saved £20 per thousand but lost one sale. If that one sale would have bought you in more than £20 you have once again lost money.
In short it is fairly hard to save money by saving on the cost of the mailing list unless you really can get the same quality mailing list at the lower price.
b) Cutting the cost of the whole mailing
Instead of a mailing costing you £400 per thousand (including postage etc etc) we assume now it might cost you 10% less overall – that is £360 per thousand.
Assuming the mailing house is a reputable firm with some sort of recognisable quality control certificate, then you have obviously saved yourself £40 per thousand items mailed.
There are two problems here:
First, knowing that you are comparing like with like. How can you be sure that one mailing house is as good as another in terms of getting everything out on time as promised. What we have to admit is that any mailing house that claims it never makes a mistake is having you on. Having run such an organisation for 25 years, and having worked closely on campaigns with many others, I can tell you that the mailing house that never gets it wrong does not exist.
Mailings are complex affairs, each one different, and at any one time a mailing house will have perhaps 50 jobs running through – each running its own mailing list and set of inserts.
The only thing one can do is to make errors extremely unlikely by instituting a series of checks and counter-checks – basic things such as not allowing the person who is running a part of the job to check that the job is correct, not having people sign off elements of work without actually checking it, and so on.
This is the sort of thing that one gets with ISO9000 certification. Which is not to say that every mailing house ought to have it – although I’m biased since my company has had this certification for over 15 years. But if the company does not, it is worth asking why, and seeing what checks are in place.
To be fair, the mailing industry’s trade body, the DMA, has said that it thinks ISO9000 is irrelevant to the mailing industry – although it will not explain why (and one is tempted to think this might be because the majority of its members don’t have it). With the absence of any other certification showing what a mailing house is up to, it’s a bit difficult to make a judgement in any other way.
Secondly, companies that offer direct mailing services on the cheap won’t have any extras. Which is fine if you don’t want any extras – but if you are really interested in getting more replies, guidance from the mailing house on what works and what doesn’t, and why your response rate might be going down, could be helpful. If you don’t want extras, that’s fine – it depends how far you think you’ve gone in taking your response rate up.
c) Increasing the number of replies you get
Here we imagine you are getting a 1% response rate, and thus on our assumptions for your £400 spent on mailing 1000 items you get 10 orders. On an assumption of £100 profit per sale you have made £1000 – minus the £400.
In short, you’ve invested £400 and received £1000, giving you a return on investment of £600 – which for most of us is not bad.
Now we ask what would happen if you raised your response rate by just 0.5%? without changing the cost of the mailing?
You’ve still invested £400 but now received £1500, giving you a return on investment of £1100. Quite an improvement.
Let’s summarise this taking into account the possible savings looked at in part b) above.
- 1% response rate at £400 per thousand cost leads to £600 profit
- 1% response rate at £370 per thousand cost leads to £630 profit
- 1.5% response rate at £400 per thousand cost leads to £1100 profit
The same differences appear whatever the response rate assumptions and whatever the profit level assumptions – a small increase in response rate can have a much bigger effect than any saving on the cost of the mailing. Which is why sometimes those extras such as free advice on how to write your mailing is so important.
Thus the only big question we should ever ask in direct mail is: how can I raise my response rate by 0.5%?
There are two answers: one involves changing the way you use words design and the other involves changing the way you use your database.
Changing the way you use words and design.
Unfortunately behind that simplicity of that statement is a welter of information – some of it quite counter-intuitive. For example, many people believe that the best way to sell is to mention your company name several times over in the first page that people see in order to get your name into the reader’s head. Generally speaking that is a disastrous approach
It is also often believed that it is a good idea to announce what you are selling very clearly. That seems too obvious for words – but again it generally reduces sales rather than raises them.
Then there’s colour. Full colour, most people believe that although expensive, always brings in a better response rate than mono. Again, not true. More often than not, the reverse is true.
The list of false beliefs about direct mail goes on and on. Here’s some more…
- You should always put in an illustration of what you are selling if at all possible because a picture is worth 10,000 words
- It is always a good idea to include the person’s name and address in the letter (usually known as mailmerge).
- Selling with an appeal to emotion is always better than selling straight facts
- Give people a choice so that if they don’t like one thing they’ll find something else
- Give the readers all the facts so they can make an informed choice – that always raises response rates.
- You must start with your best selling point
- Promotions sent with sales letters always do better than those which just include a catalogue
- Always focus on price
- Keep the text short because the reader will otherwise get bored
- Fill up the envelope with lots of information. The reader might not like one product but will find something else.
- The simple fact is that in many of these cases the reverse is normally true while in others the reverse is sometimes true. Confusing isn’t it?
If you don’t want to fight through all that detail, there’s a somewhat less overwhelming web site www.mailings.org.uk – which starts from asking why certain mailings don’t work.
Or you can try something else. You can ask the creative team at Hamilton House to comment on your mailing, and give you some insight into what you might need to do to raise your response rate. That service is quite free – you just call 01536 399 000 and we’ll take you through the process. (You just send us your promotion and we call you back and talk you through it – there really is no fee).
Alternatively you can ask us to write a mailing for you. The cost for writing a letter which you can use over and over again is £300. The cost of writing the text of a brochure is normally between £300 and £600, but it depends how big the brochure is, and so a final price is given once we’ve seen the piece. The cost of designing a brochure is normally around £400, but again it depends on the work level.
Changing the way you use your database
Let’s assume you know that your potential customers all fall into a particular list – for example they are construction firms – and you have a list of all 20,000 of these. (The same principles apply whoever you want to mail, and whatever the size of the list.)
Of these 20,000 firms let’s make a couple of other assumptions – that you have sold to 500 of them in the last year, and that all of those 500 could well buy from you again (that is to say you are not in the business of just selling one product which will last them a lifetime).
The first thing you need to do is to separate out that list of 500 into a new list – we’ll call it your Verified List. These are people who have bought from you, who like you, and who might buy again. Mailing this list is cheap – firstly because there are only 500 of them (cost of mailing around £200), and secondly because you don’t have to keep sending them glossy brochures telling them who you are. They know you, they know your product and they want to buy again.
So with the Verified List you should be mailing them regularly – maybe every two weeks – not with glossy pictures, but with information about new products and services. They’ll read, because they know and trust you, and know you have something relevant to say.
That leaves us with the rest – the 19500. What to do with them? Several things – all of which will save you money.
Firstly, look and see if you really do need to mail all of these firms all the time. Analyse your Verified List and see if that list can give you some clue as to who your best customers are. For example, if your list of firms contains businesses of all sizes, but your verified list contains businesses almost exclusively made up of firms with 20 to 50 staff, then you have a fairly clear indication that mailing firms with staff levels outside that range is pointless. At once you have probably cut your unverified list in half.
Or let’s try this another way.
50% of the Unverified List is made up of firms with 1 to 10 staff, but only 2% of your turnover comes from firms with 1 to 10 staff. What this shows is that yes, you can sell to small companies, but not very much. So 50% of your marketing cost is going on companies that make up 2% of your business.
With such information you can choose to stop mailing the smaller firms – or you might decide to mail them less often – or (and this is where the real technique comes in) you might choose to change your marketing to the little firms, in order to direct your appeal specifically to them.
Now you have 3 lists.
Verified – mail these people with new ideas every 3 weeks or so.
Unverified but in the area that most of your customers come from
Unverified but from other areas (in our example above 1 to 5 staff).
So what do you send these people – what is the practical implication of dividing the list up like this?
The verified list should get regular mailings as we’ve noted – always different, always targeting some new line or application. They trust you, so use that trust to build up regular sales.
The unverified but in the area that most of your customers come from should be buying from you – but they are buying elsewhere. You need to tempt them in, and you can do this by offering something free, by discounting, by writing adverts that are utterly different from your rivals, and so on.
Lastly, the unverified from outside your prime area. You’ve not been able to sell to these people thus far, which means either they are in a market that you are not going to get anywhere with, or they are in a market that you are addressing in the wrong way. Write new material for these people, and monitor them in isolation. Measure your response rate here, and don’t get it mixed up with your responses from the larger firms.
This section of this article is called “Increasing the number of replies you get” – and it may seem we’ve wandered a bit from this. But in fact we haven’t at all. If your mailing list is divided up in the way specified here you will get more replies because you are reaching the people most likely to buy more often. Additionally, and as a very welcome bonus, you will also be saving a lot of marketing money (far more than you will get from using a cheaper mailing list or a cheaper mailing house) by not mailing every potential customer all the time.
Throughout this example I’ve suggested company size as a way of measuring response – there are many other such ways – location, exact nature of business, specialism and so on. If you would like Hamilton House to be involved in analysing your database, please do call 01536 399 000.
Saving money by buying cheaper mailing lists or clipping a few pounds off the cost of sending out your mailshot can save you a little money – but also has potential problems since it can be counterproductive.
However improving your copy and design in accordance with the theory of direct mail certainly can make a huge difference. So can an analyse of your database, to ensure that you are mailing your customers regularly and are working in the most effective way with non-customers.
If you would like to discuss any of this, please call Tony Attwood or Stephen Mister on 01536 399 000.