How do I judge whether or not my campaign worked? This is an important question to ask. Direct mail campaigns are expensive, and they serve a crucial function, which is to build your customer base and bring in an immediate influx of money. If your campaign isn’t effective, you’re losing money on the mailing itself now, and in lost revenue in the future.
So you should always assess the results of your campaign to determine how well it did. This will tell you if this campaign was worth it, and will also give you a basis to experiment with ways to improve future campaigns by making changes to the sales piece, the mailing list, etc., and comparing the results of the original campaign with the revised one. If you don’t do this, you’re shooting in the dark, and you’ll never get the full value that you could from your advertising efforts.
The way I determine how well a direct mail campaign did is to calculate the return on investment (ROI) of the campaign, taking into account the costs of the campaign itself, the immediate monetary gain from that particular campaign, and the average Lifetime Value of customers who are acquired through the campaign.
There’s some controversy concerning what to include in the costs of the campaign. Everyone agrees on what I call the “hard costs” of a campaign, which include printing, list rental, data processing, mail processing, and postage. And if you’re selling a product, you would want to count the cost of the product itself for each order that’s fulfilled.
But some marketers want to include more of the operating costs of the business and expect a successful campaign to make enough money to cover some of those. I don’t agree with that. You’d have those costs whether you ran the campaign or not. I like to just stick with the specific costs associated with running the campaign itself.
But then there’s the issue of costs like paying for a copywriter and a graphic designer to prepare your sales pieces. Should you include those costs? It depends. If you’ve created a sales piece that will be used in many campaigns down the road, then I wouldn’t saddle the first campaign with having to “pay for” the whole thing. But if it’s a one-shot sales piece, than maybe you would want to consider its total cost.
Once you’ve decided how you’ll come up with the cost of the campaign, you need to decide how you’ll determine the other side of the equation – the lifetime value of the customers you get from the campaign. What is a customer worth to you?
Some marketers think you should determine the actual lifetime value of the customer over the full life of that customer with your business – five years, or perhaps even ten years. Other marketers think that’s too long to consider, and that one to three years is sufficient. You don’t want to wait five to ten years to get paid for acquiring a customer. You want to make your money back in much less time. You want a profitable ROI as soon as possible.
In my experience advising marketing clients on this issue, I tell them that they should be able to make enough money from a campaign to start seeing profits based on plugging the average nine-month lifetime value into the ROI equation. So, if you have data on your average customer lifetime value based on different periods of time, then you want to make enough money on a direct mail campaign that a nine-month lifetime value will ensure a profit given the cost of running a campaign. Ask yourself how long you are willing to wait to recoup your costs and start making a profit on your campaign, and that’s the lifetime value you should put into your calculations.
Now the question is, how will you get the figures you need to make these calculations? And the answer is, you need a systematic way to track your results, and you need to put the information you collect into a good database.
Accurate tracking requires consistent coding of your data (customer numbers, codes on different versions of sales pieces or different mailing dates), and a way to capture those codes (with coded order forms, requesting codes for online orders, and a well-trained telephone staff that always asks for the code).
Then all that data must go into a database that gives you easy access and flexibility so you can always pull out the exact data you need. This makes it so much easier to determine the ROI for each campaign. And it lets you try out different ways of looking at the data so you can find out which approach gives you the best analysis of your data.
Finally, if you’re not sure how your campaign will turn out, and you want to avoid investing too much money on a trial run, simply start small. Start with a limited list and see how you do. You won’t make as much on a small list as on a large one, but then, you won’t lose as much either, in case you sales piece needs major work, or you haven’t tapped into the best mailing lists yet.
There’s nothing wrong with dipping your toe in the water before diving in. Then look at the results. If you cover your costs on a small mailing, then you can be more confident about rolling out to a larger list. Keep calculating and examining your ROI, and let it guide you to larger and larger, and more profitable, campaigns.