Response Rates

What is a reasonable response rate in direct mail order? I've read from 1% for a mass (untargeted) mailing to as much as 30% for targeted markets. How about in publications, such as papers or magazines? Are there any good numbers to base the success of a mailing on? Or, is it as simple as if you make money you are doing well? Thanks for any input.

Mike:

Response rates are merely data for you to analyze and use to draw conclusions from.

For instance: One mailing may get a response rate of 3% and another may get 7%. Was one more profitable than the other?

Cannot say without knowing what the mailed packed consisted of, if the rate was to an in-house list or generated list or what the price of the product was.

A higher priced product will need a lower response rate to be profitable compared to a lower priced product, generally speaking.

Using the rates you've heard, you can then figure out if it's even worthwhile going ahead with a mailing.

E.g. If you're selling a $10 product to a cold list and your mail piece costs 50 cents to mail (print and mail), then it's going to cost you $500 to mail 1,000 pieces. If the product you sell has a cost to you of $2, you will make $8 profit per sale and will need to sell 63 units to cover your mailing cost. You will need a response rate of 6.25% to break even.

It might be possible, even on a $10 product. But the odds and averages are not in your favor.

Some people would say it's still okay to go ahead with such a mailing because you can make up for it on the back end.

Maybe. Maybe not.

I prefer to approach it as, "if it's not profitable from the start and I need to rely on the back end to make it profitable, then I'm not doing it."

I'll "invest" my money in a test - even in a test which appears to need double the average response rate to a cold list just to break even). And if the test is not profitable I'll either make an adjustment and re-test or drop the project and move on.

IF it makes money... then knowing the response rate is handy.

For instance: If I do a cold mailing to 1,000 people and get a 2% response and it makes me $100 net profit, and another test to another 1,000 also gets a 2% response and makes me a net profit of $100, I can figure out that a mailing to 50,000 should get me a 2% response (1,000 buyers) and make me $5,000 - I'm making $5 per customer.

I can then work backward from a desired income...

If I want to make $250,000 I can figure I'll get that from 50,000 customers ($250,000 divided by $5 per sale) and those 50,000 are 2% of the total mailing so I'll need to mail 2,500,000 pieces of mail (50 X 50,000 or 50,000/2%).

Now the thing about this is... a mailing of 1,000 is only making you $100. Yet, that small profit and small mailing grow to a quarter of a million dollars when you mail out more pieces.

IF, you were to follow the "it's okay to lose on the front end and make it on the back end" advice, your initial mailing puts you in the hole. To get out, you have to dig deeper (spend more money to mail your back end offer to your newly generated customer list). What if, it does not work? And there is NO GUARANTEE it will work.

Also, the more sales you have (when you lose money on the front end) the further in the hole you go. YOu actually end up not being able to afford to be successful because success is sending you broke.

Of course, IF the back end does make you a profit, then it might be okay. But the only way you are going to know is to TEST.

Call me lazy, or whatever, but I prefer to not even take the chance of going further backward. That's why I have a "make money on the front end or drop the project" attitude.

Regrading ads... if you are making money from them, you are in front. And now you have to try and run more ads.

If one ad in one paper is making $20 net profit per week, then to make $500 per week you need to run 25 ads - either five insertions in five papers or one insertion in 25 papers.

What if there aren't that many papers? Then be happy with the $20 per week ($80 per month) extra money you are making. Use it to pay off your debts faster or add it to your investment income, or use it to run ads for other projects so you don't have to take money out of your paycheck.

And the response rates of the newspaper... I personally don't care. I mean, it won't alter my decision to run an ad or not.

Are you making money??

THAT is what matters in the final analysis.

Choose a high-priced product... and I'm talking in the range of $10,000 to $20,000... and who cares what the response rate is? In fact, at that kind of price it really doesn't matter. Because as soon as anyone responds, you are most likely going to make money.

Lets say you sell a $20,000 product and it has a profit of $5,000. So every time you sell one you will make $5,000. And out of that $5,000 you have to cover your marketing costs.

How Could this be marketed?

Lots of ways but lets stick with two-step (a lead generating ad followed up with a multi-page sales letter).

Your ad costs $20 per week and your mailing piece costs $1. Those who are after your particular product already know it's going to cost a lot so the price tag won't be too much of a surprise for them.

How long can you market before running out of money or it becomes unprofitable?

Your $5,000 profit will buy you a $20 ad for 250 weeks - nearly five years.

But lets say you get 20 inquiries per week.

At $1 per inquiry you spend $20 on mailing and $20 on advertising ($40 per week all up).

At $5,000 profit you can afford to spend $40 a week for 125 weeks (about two and a half years) to make a sale. If you can't make a sale in that time, you are out of business.

What if it takes six months to make a sale?

You've spent $1,040 on marketing ($40 per week times 26 weeks) and made a $5,000 sale for a profit of $3,960. Which averages back to be $152 per week.

See what I mean? When the price is high enough, response rates almost don't matter because as soon as ANYONE response you are in front.

The question you really have to answer for yourself is:

"Am I willing to keep doing something if the profit is only small (or 'Am I willing to keep doing something if it takes a while to make a sale when the product is priced high enough)?"

As you may or may not know, we test the different ideas presented in The Great Ideas Letter. We present the idea, test it and then reveal the results of our test.

So far, we have made a profit on every idea tested and presented. And each tested idea is still running and still making a profit. Sometimes small, sometimes large... but always a profit.

You can use response rates to evaluate whether you will do something or not - before you do it. But remember... those rates are Averages (people have gotten higher rates than those and lower rates) and all that really matters in the end is "Are you making any money?"

Follow the two rules of Investing...

Rule 1: Don't lose money!

Rule 2: See rule one.

Follow these rules and adopt the attitude of 'drop it if it doesn't make money from the start' and you'll always come out in front.

Michael Ross


The Great Ideas Letter