How to Cut Direct Mail Costs and Increase Profits

by Dean Rieck

Too many businesses are throwing away money in an effort to "look" successful in their direct mail. Image is important, of course, but when it comes to direct mail, there's no reason to break the bank. In fact, if you're really concerned with profit margins and return on investment, there are ways to cut your direct mail costs while increasing your profits.

Spend your time wisely.

If you're like most mailers, you're spending the bulk of your time writing and designing your direct mail. Unfortunately, copy and graphics are the least important elements in the success of your mailing.

You have four basic elements to think about in any mailing. And based on their importance, here is the percentage of time you should spend on them:

So if you're mailing to anyone outside your current customers (who are your best prospects by far), spend a lot of time selecting the list. If you don't know how to go about selecting a list, work with a list broker who can offer you expertise with the type of prospects you'll be mailing to.

Likewise, don't just tell people how much your product or service costs. Make them an offer. Give them a deal. Offer something free. Your prospects should open your mailer and say, "Wow! That's an offer I can't refuse!"

So get your priorities straight and focus on the elements that will generate the best response. Find a list and develop an offer first. Then think about copy and graphics second. In the long run, this can dramatically cut your expenses and increase your profit.

Estimate a return on investment.

The goal for any mailing is the profitability of that mailing. Yes, your mailing will have some degree of long-term residual value in terms of image-building. But in most cases, you should try to make every mailing directly profitable. So, before you start any mail promotion, do a simple calculation to estimate your return on investment.

Let's assume you're doing a two-step mailing to generate leads for your sales force. You're going to mail to 25,000 prospects and you assume a 1% response, giving you 250 leads. You know your sales force can usually turn 10% of leads into sales, so 10% of 250 gives you 25 sales.

Now, let's say you know your average sale is $5,000. Multiply 25 sales by $5,000 and you end up with $125,000 in gross sales. If your margin is 30%, your net sales are $37,500.

So far, so good. But now you have to subtract your initial investment in writing, designing, printing, postage, list rental, etc. If you spend $25,000 up front, you subtract this from your net sales of $37,500 to arrive at your net profit of $12,500.

What is your return on investment? Simply divide your net profit by your total investment ($12,500 / $25,000) and multiply by 100 to get your return on investment, which in this case is 50%. All things considered, not bad.

Whether your net profit or return on investment is acceptable is up to you. Just remember that you should never mail without getting some idea about how your advertising dollar will translate into profit.

After your mailing, compare your actual results with your projected figures. Were you too optimistic about your response rate? Were the leads better or worse than you assumed? Could you increase your profit by lowering printing and design costs? Answering these questions shows you where you can cut costs and boost profits for future mailings.

Eliminate add-ons you can't justify.

I hope my ad agency and printing associates will forgive me, but some of the fancy extras mailers use are a blatant waste of money. Agencies and printers love tokens, gifts, peel off action devices, and other add-ons because they look great, win awards, and increase THEIR profit. But they can also increase the cost of your mailing without an equivalent increase in YOUR profit.

In all cases, you should be open to test any little extra that could make you stand out or get attention, because often it can work wonders. But your rule of thumb should be "start cheap and try add-ons one at a time." If an add-on increases profits and offsets the extra cost, great. If not, drop it.

Try two-step mailings.

Now you might be saying, "It's important to spend a little extra to make my product or service look good." Fine. There's a simple way to have snazzy brochures and still cut costs. Just do the two-step.

A two-step mailing is ideal for cutting down on the number of expensive sales packages you send to idle information collectors and low-quality prospects. First, you mail a simple, inexpensive package (maybe just a letter and a response card) to your entire list offering more information about your product or service. Second, you mail your more expensive package only to those who respond to the first mailing.

This method is doubly cost effective. Not only do you put your expensive sales literature in the hands of your best prospects, but you will usually spend less money on the entire promotion and increase your overall return on investment.

Choose consultants or agencies carefully.

Who should you have write, design, and produce your direct mail? Someone who understands the special techniques and tactics of direct mail, of course. Unfortunately, while lots of people produce direct mail, most think it's just an ad in an envelope.

So what do you do? Shop around for outside help the same way you go about hiring someone. Ask to meet them. Probe their knowledge of direct mail. Find out who else they've produced direct mail for. Find out if they just do direct mail as one of a dozen services or if they truly specialize in it.

Also, pay attention to what they talk about. If they start off by showing you flashy samples and what your piece will look like, proceed with caution. But if they focus on your marketing objectives and begin by discussing your list and offer, you've found someone who may be able to help you turn a profit.

Copyright © 1994 Dean Rieck. All Rights Reserved.
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