How do you measure direct response?
If you’ve heard anything about direct response marketing, you’ve heard one thing: Direct response is measurable. True enough. But we can measure a multitude of things. Which are the most important ones? Let’s take a look at a few.
This is usually the first and probably easiest measurement. It’s simply the percentage of people who responded to your offer. If you sent a mailing to 100,000 customers and 4,500 responded, your response rate is 4.5%. Easy, right? Simple math. Critics might dismiss a 4.5% response rate as a 95.5% failure rate. So let’s dig a little deeper.
After response rate, you should examine your conversion rate. We define conversion rate as the percentage of prospects in your targeted list of prospects who become paying customers; they actually purchase your goods or service. You might ask, “How is the conversion rate different from response rate?” Sometimes there is no difference, but usually there is. Let’s look at a residential HVAC distributor example.
Each quarter they send 100,000 targeted self-mailers that offer a free furnace inspection and promote the sale prices of new heating and cooling systems. The 100,000 mailers result in a 4.5% response rate. In this case, that means 4,500 responders called and accepted the offer of a free furnace inspection.
Now let’s say 15% of those 4,500 purchase a new furnace, that’s 675 furnaces sold. The conversion rate can be measured two ways: as a percentage of the total prospects mailed or as a percentage of those who responded. Whichever conversion rate you choose doesn’t really matter, because what is important is that 675 furnaces systems were sold. Right?
Small numbers, big sales
Wait, that doesn’t seem like very much. We mailed to 100,000 people and sold 675 units. Isn’t this an epic fail? Hardly.
Furnaces are expensive, approximately $5,500 each. That’s $3.7 million in sales. Not bad for a mail campaign that cost $75,000.
But wait, there’s more – the ever-crucial ROI, or return on investment.
In this example, the ROI is a measure of profit realized after all expenses and investment. Remember, total sales tied to this program were $3.7 million. Our client’s cost of the furnaces, parts, labor, etc. was $1.9 million, for a profit of $1.8 million. All from a marketing campaign investment that cost $75,000.
The equation looks like this:
We would say the ROI is 24:1, meaning that for every dollar our client spent on the campaign, they made $24. If you’re interested in learning more about how Infinity Direct can help increase your key metrics, or would like to see specific case studies, give us a call.
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