© 2004 Dream Merchant Dream Merchant • 2309 Torrance Blvd. #104, Torrance, CA 90501 (310) 328-1925 email: Jkm316@aol.com HOW TO FIGURE OUT IF YOUR MAILING WILL MAKE MONEY...BEFORE MAILING IT.
Before Laying Down Your Hard-Earned Money, It Helps to Find Your Most Likely Prospects. ©2004 By Jeffrey Dobkin The best way to get more customers is to mail them something like a new tie or a 10-pound box of Godiva Chocolate. Right? But are these gifts really feasible? No, I didn't think so. On the other hand, direct mail is one of the best ways to get customers. So how about if we simply mail potential customers a few nice letters, or a few post cards? Yes, that's still one of the most effective marketing campaigns.
When you know your target market, you can minimize your expense by mailing just to your Most Likely Prospects. Here, direct mail really rocks. The more focused and targeted your mailing list is, the better your mailing works. Conversely, when your market (your most likely customers) isn't a well-focused group, when they're not easily defined or are strewn across several boundaries, then direct mail probably won't work. You can't mail to everyone--it's way too expensive.
So let's take a closer look at the costs and see if we can figure out if your mailing will be successful BEFORE you spend any money:
RULE NUMBER ONE--A Mailing (letter or brochure) to a Group of Prospects Will Cost You Roughly a Half Dollar for Each Piece.
Face it. It's 37 cents just for postage, plus the list can run 10 cents for each name and address record. Plus envelope, letterhead, brochure. Add mailshop services to put it all together and presto--it's expensive. We're talking 50 cents for each piece mailed.
What does all this mean? It means if you mail out 1,000 pieces, it's will cost you $500. If your list is around 5,000 names, it'll cost you $2,500. And if you're mailing to 10,000 prospects, it'll cost you $5,000. Five grand! Wow!
Here's the upside: suppose your test mailing works and you make money? Suppose you mailed 1,000 pieces and you make $750? Then you mailed 10,000 pieces and made $7,500? Now you can roll out and mail to the rest of the list. If the list is 2,000,000 records,...well, you do the math. But I'm getting ahead of myself.
Some people say direct mail is expensive, some say it's cheap. Your point of view comes from how much income you make off each mailing. And that will depend on (a) your response rate, (b) your gross revenue, and (c) your gross profit per sale. Here's how to figure it all out.
RULE TWO: Work the Numbers Backwards
To figure out if a mailing will be successful, you'll need to know what percent response you must get to show a profit. For example, let's create a test mailing of 1,000 pieces (it's easy to work with this number):
Test Mailing: 1,000 pieces Cost of Mailing: $500 Your Product Sells For: $100 Product and Fulfillment Costs: $50 Gross Profit You Make Each Sale: $50
How many people have to buy your product for you to break even? Answer: 10. If you had the correct answer, pat yourself on the back and get a beer. Get me one, too. But no TV yet...
Remember this: Gross Profit = Money you still have in your pocket after buying goods and shipping to your customers.
RULE THREE--Use What You've Learned to Make Money
Now, let's get profitable. Tweak and fine tune your direct mail package and offer, to make it draw better. Get just one more person to order and here's what happens...
If 11 people order, you make money. This is a 1.1% response rate and you're profitable. When the first 10 people bought your product, your gross profit ($500) covered the cost of the mailing. With the next purchaser, you made $50. And with every purchaser after, you make another $50. Is it as simple as that? Yes, yes it is. At 1.5% response, 15 people order, you make $250.
RULE FOUR--Figure Your Success
Just as we did above, figure out the number of people who must order for you to break even. Base your mailing costs on $500 per thousand pieces mailed. If you mail 1,000 pieces, how many units will you need to sell to cover the $500 in mailing costs? Convert that into a percent response (number of people who need to purchase). Then see if that percent is a reasonable figure.
People ask me if I sell my book, How to Market a Product for Under $500 through direct mail. I tell them no. My book sells for $30 and I would need 50 sales to cover the cost of mailing and break even. In other words, I'd need a 5% response rate. Sad, but true, I don't think I can hit that--a 5% response rate is very unlikely. That's why most products selling for twenty or thirty dollars won't work for solo direct mail offers. Which brings us to Rule 5.
RULE FIVE--Be Realistic on Figuring What Percent of People Will Order
Success should be based on a 1/2% to 1-1/2% order rate to break even. Anything higher is unrealistic. While it may happen, it's unlikely. I advise my clients that they need to be profitable at 1/2 % to 1-1/2% response.
RULE SIX--Follow the Real Ways You Can Make Money In Direct Mail
First, find a source for quality mailing lists. Next, create a mailing that's profitable--no easy task. Then, test products, offers, lists. This is the hardest part. Eventually if you stick with it, you'll find something that tests successfully. Even if it just throws off a little cash after you pay for mailing, product, and fulfillment costs, that's OK. Just look and see "How long is the list."
Once your offer tests successfully and you find it's profitable mailing to small segments of your list, increase the size of your mailings. If larger segments of the list test successfully, you can mail to the rest of the list with similar predictable results. The percentage of people ordering should be the same as your test mailings. The way you make money--with little risk--is to send the same mailing piece to the rest of the people on the same list that tested well initially.
If you made a profit of $50 on your first test mailing of 1,000 pieces, you should make $500 on a mailing to 10,000 and $5,000 on a mailing to 100,000. How about if the list was 2.5 million records? This is the way you make money in direct mail--you duplicate your success. Make sure your mailing is scalable because if it works in the small scale (test), there's a way to make it work in a large scale. The same package to the same list = same results.
Hold on a minute. You're not finished making money from people who ordered. If you supplied a great product ad, great service, you're going to get additional business from them. And referrals. Your cost to get them to reorder is much less. You're marketing to a warm market--they have become the GROUP MOST LIKELY TO PURCHASE from you.
Further mailings to this select group will yield much better results, and cost you much less. If your purchaser list is large enough, you can just mail to them. Your response rate will soar and so will your profit. Hey, if this happens, send me something nice. My favorite color is blue, my favorite car...a Corvette. Thanks.
Jeffrey Dobkin, author of the incredible 400-page marketing manual, HOW TO MARKET A PRODUCT FOR UNDER $500 ($29.95), now has a second book, UNCOMMON MARKETING TECHNIQUES ($17.95), which contains 33 of his latest columns on small business marketing, exactly like the one you just read. Both books are available directly from the publisher by calling 1-800-234-IDEA. These books are completely filled with tips and techniques to make your marketing faster, cheaper, more effective and fun. You never learned this stuff in college!
Mr. Dobkin is also a speaker, a direct mail copywriter, and a marketing consultant. To place an order, or to speak with Mr. Dobkin, call 610-642-1000. His fax number is 610--642-6832. Phone orders welcome--Visa, MC, Amex. Satisfaction Always Guaranteed.
You may write him at :
Jeffrey Dobkin The Danielle Adams Publishing Company PO Box 100 Merion Station, PA 19066
You may also visit his website at: http://www.dobkin.com
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