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Old 4th September 2008, 08:38 AM   #1
BeInnovative
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Default How Are People Making Money Through Direct Mail?

Maybe a simple question, but I don't see how it adds up when you consider the costs versus the likely sales you get. Either that, or my costs are way off, or this is an inappropriate approach for my business. Hopefully someone can help me find out where the problem is.

We did a direct mailer in April for our educational board game. We rented the list from the American Auidance Councillor assoc. We sent out 2000 postcards. Had them printed and then had Canada Post (equiv of USPS) mail them.

name/address rental: 2000 for $300.
postage cost (may have included adding the stamps): $1000
printing: $400 (not positive but in this range)
Approx total cost: $1700
Our response rate was only about 1%, in that this generated: generated about 20 single game sales
Revenue from these sales: $600
Profits from these saesl: $260

So as you can see, just looking at numbers, we lost almost $1500 on this. We're in an awareness building phase, so I still am glad we did it, but when considering future marketing/advertising opportunities geared at generating sales, based on these numbers, I would pass on this.

But something tells me I'm just doing something wrong. Any thoughts would be appreciated.

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Old 4th September 2008, 11:23 AM   #2
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My company has used direct mail from time to time to market our products, as well. While we're not necessarily dancing in the streets to celebrate our successes, we have learned some things over the years.

Those who use direct mail regularly (and there are many who are quite successful with it) say that a single mailing is almost never enough. I forget the exact number they've decided is optimal, but you need to "touch" the customer multiple times to get their attention and get the maximum number of responses. I seem to recall something in the neighborhood of seven or eight times, but don't quote me on that.

Integrating your direct mail campaigns with other marketing channels can bring a better response. So, for instance, if they hear your ad on radio or see it on TV, then see a billboard with your logo on it, then they get your postcard, they've already been "touched" by you two or three times (maybe more) by the time the postcard arrives, and you'll likely get a higher response.

See, you tend to get more responses from people who already have heard of you (whether they heard of you from your own repeated direct mailings to them, or through other marketing channels). Your worst response rates will come from "cold" lists (i.e. rented or purchased lists of people who probably don't know you from Adam's housecat). Your best response rates will generally come from existing customers (lots of companies use direct mail to announce new products or advertise sales and special promotions to existing customers).

So what this means is: either you have to find other ways of reaching out and "touching" the people on that list in addition to the one-shot, or you have to send out multiple mailings.

Well, actually, strike that. You really need to send out multiple mailings anyway -- people will accidentally discard the postcard when they meant to keep it, somebody else will clean their desk for them and get rid of it, they'll misplace it by burying it in a stack of paperwork... you need to plan to follow up the first mailing with at least one or two more no matter how many other channels you use to reach out to the customer.

This is why we get so many fund-raising letters from the same charities over and over, and why some magazines and book clubs seem to send us a new invitation to subscribe every couple of months, even though we've never indicated any interest in them.

Personalization may also in some cases increase the response. This is when you have the printer insert the customer's name or other information dynamically into the copy on the postcard. (There are high-end digital printers that can do this fairly economically these days.)

Direct mail is a specialty within marketing. There are folks who spend their entire careers learning how to maximize response rates.

Your 1% response rate is a little below the industry average, from what I understand, but not necessarily bad for a first-time mailing to a purchased list.

--Torka

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Old 5th September 2008, 08:22 AM   #3
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Originally Posted by BeInnovative View Post
Maybe a simple question, but I don't see how it adds up when you consider the costs versus the likely sales you get. Hopefully someone can help me find out where the problem is.

But something tells me I'm just doing something wrong. Any thoughts would be appreciated.
You could have avoided the loss if you would have crunched some realistic numbers before attempting the project.

I checked your website and see that the game sells for $35.00.

In my head I always use 1% as a decent response rate. So, for every 1,000 postcards you send out you should end up with 10 orders.

10 orders X $35.00 = $350.00

I ballpark the printing, the mailing list, lettershop addressing and first class postage at $500.00 per 1000.

So, right away you see you're in the hole.

BUT, direct mail isn't about the front end, it's all about the back end. What other (higher priced) product are you going to sell them next? The (big) profit is (always) on the back end.

NO back end? (Shame on you.) Then your product should be sold at a price where you can make a substantial profit on the front end. With a board game that would be pretty tough to do.

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Old 5th September 2008, 01:54 PM   #4
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Good points, Slippery -- and welcome to the forum, BTW!

--Torka

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Old 5th September 2008, 02:34 PM   #5
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Yea that does suck you lost 1500 dollars on that campaign, but donít give up on direct mail just yet. I found from talking to my customers, that in order to get the best response rate you must target the same people several different times like the other guy said. Also you might try to get a more targeted list. Maybe you were mailing to all the wrong people.

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Old 5th September 2008, 02:41 PM   #6
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Yea that does suck you lost 1500 dollars on that campaign, but donít give up on direct mail just yet. I found from talking to my customers, that in order to get the best response rate you must target the same people several different times like the other guy said. Also you might try to get a more targeted list. Maybe you were mailing to all the wrong people.

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Old 5th September 2008, 04:50 PM   #7
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Great responses. Thanks. This business has been such a huge learning curve in every way. It's great to be able to benefit from the knowledge of others on things like this.

I don't view my spending on that program as a loss because we were going for exposure as well as sales, and I suspect that we will see higher returns on future programs as a result. In fact we continue to get requests for our "educator discount code" through the contact form on our website, which are largely turning into sales. I suspect that some of them are happening because the teachers remember seeing our postcard back in the spring.

Still, looking forward, I want to make sure I fix mistakes in implementation for all the marketing/advertisement stuff that I do, and as part of that, evaluate the effectiveness of various approaches relative to each other as a way of prioritizing. Considering the cost of our product, the point about a 1% response rate, and the cost of direct mail, I suspect we won't do this again. Or maybe we'll try it via email instead to save on printing costs.

As for back-end, we don't have a high-priced back-end product in our plan, and I don't think that we need or want one. As one of my VC friends keeps asking: "how many other products did the company that makes Scrabble have?" The answer: "doesn't matter."

Thanks again for the great insights.

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Old 6th September 2008, 09:53 AM   #8
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I just realized there is a good option for us to use this. We have built a school fundraising program such that schools or student groups within schools can sell our game to raise money. Direct mail to get schools to participate in that would be ideal as we're no longer talking about 1 35 sale per customer.

This and direct mailers to school boards where someone might be able to make decision making for multiple schools.

thanks slippery slope for getting me thinking beyond the game itself!

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Old 6th September 2008, 11:31 AM   #9
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As for back-end, we don't have a high-priced back-end product in our plan, and I don't think that we need or want one. As one of my VC friends keeps asking: "how many other products did the company that makes Scrabble have?" The answer: "doesn't matter."
I'm going to argue that it does matter. Here's why...

Scrabble isn't a niche product. Your product is a niche product.

Scrabble was sold to major retailers with each one buying (tens of) thousands of units.

There is nothing more foolish than building a company around a single product.

The back end is extremely important to any company. Why?

Because it's so much easier to sell another product to a person who has already bought from you before. It's mind-blowing how easy additional sales come (from recent) customers.

You work hard to get a customer. It costs a lot of money to do so. Once they buy, what else are you going to sell them? If it's nothing, then you really need to evaluate your business model.

Here's an example... (I was going to use the company Boardroom, Inc. because they do a lot of direct mail marketing, but many in here may not recognize the name so I'm going to use...) "Girls Gone Wild" (Mantra Films) sells a product through spot ads on cable TV.

They acquire customers in the ad by offering 2 free dvds for just $10 (shipping and handling). Their back end is selling them one dvd a month for $20 plus $7 for shipping and handling. Guess what?

After selling hundreds of thousands of dvds they know every new customer they acquire will buy 3 additional dvds (on average). Cha-ching!

Here's the bottom line on every customer they get: $91. $60 is pure gross profit, but they are making a small profit on each shipping and handling fee too. The 5 (total) dvds the customer ends up with costs them less than a $1 each. All this happens from a $10 offer in a spot ad.

You should seriously be thinking of what else you can sell your customer immediately after they purchased your board game. Perhaps a $39 dvd on the "secrets" of getting a better SAT score. Perhaps a series of SAT "secrets" dvds.

Perhaps offering a free "secrets" dvd for $7 shipping and handling (you'll still make a tiny profit or break even at worst) and then selling them (on the back end) a set of "secrets" dvds... with one being shipped out per month (like "Girls Gone Wild"). And maybe your board game would be a back end product to the dvd.

If your company doesn't have a back end then you're going to be in trouble. Period. Take that to the bank and cash it. Rethink your business model.

SS


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Old 6th September 2008, 12:31 PM   #10
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If your company doesn't have a back end then you're going to be in trouble. Period. Take that to the bank and cash it. Rethink your business model.

SL
The model you've suggested absolutely works for some businesses; and for others its a quick trip to chapter 11.

That is a sound business model - to sell new products to the same customer - but it is not the only one. The other primary one is the model we are using - sell the same products to new customers. We do have a full product-line planned, but its based on new applications of the same business. I mention the Scrabble point however, as there are in fact many, many companies that are extremely successful with onlly one product; and there are many more who dabble with bankruptcy because they grow too fast and at times they stray from their message in the process. Just look at what Starbucks is going through now.

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