Break Even On Your Next Direct Mail Campaign...And Still Generate Huge Profits

With direct mail, you can break even and still claim success. The reason for this can be understood only when determining the lifetime value of each customer brought in and the likelihood of those customers responding to subsequent offers. Here is a concrete example to illustrate my point.

Joe's Civil War Shop

Joe owns a Civil War souvenir shop. Yes, believe it or not there is a rather large market of Civil War nuts who collect anything from old bullets, to swords, to manuscripts written by confederate generals. Joe's sales have been slowing since he is located in Virginia, the capital of Civil War memorabilia because this market has saturated itself from having close local stores to buy collections from.

So, Joe decides he wants to sell nationwide through direct mail. He goes out and gets the best Civil War nut list he can find (no offence Civil War lovers...), hires the best copywriter he can afford and sets out on a little campaign of his own?a direct mail campaign.

His sales letter sizzles. Orders come in at a respectable rate, but after he tallies the results he discovers the cost of the mailing just about breaks even with the orders that came in.

My question to you is this:

Should Joe abandon this project or continue?

This is a big decision he has to make. What would you do?

Continue If Your Existing Customers Will Buy More From You

The correct answer is really very simple if you understand the lifetime value that each customer on average brings you.

Let's say, on average, Joe's customers pay around $65 for each order they make. But Joe knows Civil War nuts normally can't stop at just one item. Once Joe establishes a strong trust with his customers by shipping promptly, providing products that match expectations and satisfies the desires of his customers, then on average those customers are likely to buy 2, 3 or more times per year from Joe. So lets say on average a customer buys 3 times a year from Joe. This comes to about $200 a year.

Now after Joe "breaks even" a few times, he will have accumulated a good set of loyal customers provided he shipped on time, provided a great product, offered strong guarantees and gave prompt assistance whenever questions came up.

Now Dig The Gold From Your Loyal Paying Customers

Now, lets go back and see what happens when Joe sends a sales letter to ONLY his core customers that actually bought his products. What do you think his response and order rate will be? His customers already have shown to be hungry for his products. He has more to offer. If he throws in a special offer to his "best customers", his response rates could be 30% or more.

So by "breaking even" Joe has built a strong customer base loyal to him. Now I ask...did Joe really break even? Of course not, he will make more money later on reselling to the customers he captured on the break-even mailings. At this point he would be stupid to stop after the first mailing.

Does Your Customer Base Fit This Profile?

If you want to use direct mail to expand your customer base, keep this in mind and ask yourself:

"What can I afford to spend to bring in customers who will continue to respond and buy my products at a rate that more than justifies the cost of the mailings and brings a worthwhile profit. Each business will have different ways of calculating this?in Joes case I'll step you through it.

Let's Crunch The Numbers To See How To Profit

We'll use a starting 1000 mailing list as a base. Lets say it costs $800 for the mailing. $200 for copywriting, $100 for the list and $.50 for postage and cost of shipping. The total cost is $800 ($100 + $200 + ($0.50*1000)). Now to break even Joe would need to sell 12 products at $65. $12x$65 is approximately $800. That would be at a 1.2% response rate.

So Joe just broke even...now lets see what happens if Joe sends 3 mailings to those 12 customers at a 30% response rate...

30% is about 4 customers. If each order is $65 then 4 x 65 = $260. Now this time sending mail costs only $6. So this time Joe made $254 dollars mailing to only 12 customers!

Let's Try It On 10,000 Mailings

Once we use 1000 customers to find our winning sales letter that gets just a 1.2% response (of course a better response will mean more money), lets see what happens when we roll this out to a real list of 10,000.

With 10,000 mailings and 1.2% response, sales = $120*$65 = $7800. The sales letter has already been written, so no charge. Therfore, $7800 (sales) - $5000 ($.50 for each letter -- 10,000 letters) = $2800 in sales.

30% response on future mailings to 120 customers is 40, so 40*$65 = $2600 in sales! Subtract out the cost of the mailings of $60, then the final sales is $2540 from just 120 people! Now do this 3 times a year and you'll likely make $7620 or more extra per year!

Test, Decide, Profit

With a few test mailings to 500 ot 1000 people in your market, you can determine what your profits will be when you roll it out to 10,000. In this case, if you market is made up of 100,000 people, you stand to make $76,200 per year with this campaign. And let's say the average product is $130 dollars...you can make $152,400 per year!

I hope you can see the power of careful testing followed by controlled follow-up with your customers. Use the simple calculations I showed you in this example and see if they may work with your own products. Remember, test your first mailing on a small list of 500 or 1000. Do this until you get a response rate that justifies rolling it out to more people. Also, know your market. Calculate how much the average customer is likely to buy over the course of a year. If it all adds up?go for it!

Next article I'll show you another way to leverage your existing customer base to make even more money. Stay tuned.

(Disclaimer: The information contained herein is meant for educational purposes only. The reader is solely responsible for any actions made based on the information contained in this article. Many factors affect success such as product, mailing list, offer, sales letter, etc.)

© Copyright 2004-2005 JM Marketing, All Rights Reserved

Jay McKee is a freelance copywriter and marketing consultant located in San Jose, CA. Jay specializes in all forms of direct response marketing. He also provides marketing advice to small businesses located in San Jose. To improve your direct response ads or to learn more about how you can use direct marketing to get more customers, sell more of your product, and boost profits without spending more on advertising go to: http://www.jaymckeemarketing.com

---

Maximizing Your Yellow Page Investment

Yellow Page users are the hottest of all prospects ?... Read More

Increase New Customer Traffic to Your Business

One person tells another, who tells another, who tells another... Read More

Assumption Based Marketing Vs. Fact Based Marketing

One of the most common mistakes in marketing is making... Read More

Want To Impress Customers, Win Clients and Influence People?

Remember the baseball cards kids traded while... Read More

Quick Postcard Design Tips

TIP #1: Avoid the "Too Much Information" Syndrome... Read More

Pre-Cleaning and Updating Addresses in Your Database

When you send a direct mail piece using the Addressed... Read More

How To Market Effectively Even If No One Understands What You Do

So how do you effectively market your product or service... Read More

Devious and Deceptive Packaging

Have you read anything in the news lately about childhood... Read More

Feature Your Benefits

Sales Copy? eventually every small business owner must consider what... Read More

Make It A Threesome

What if -- every time you had a networking appointment... Read More

People Arent Interested in You or Your Company

Does your Web site talk about your company? Yes, I... Read More

How to Turn Your Marketing Into a Money-Making Machine - Preparing for Marketing That Yields Results

The usual complaint from companies is that Marketing simply does... Read More

Becoming The Obvious Choice In A Sea Of Competition

Differentiation, niche marketing, and positioning. These and other related business... Read More

Get More Clients From Networking - Follow The Rules Of Dating!

If you're a business owner, you probably spend quite a... Read More

Wise Man Marketing

It's a sunny morning and you're sitting in your office.... Read More

Network Your Way to Success- 12 Tips to Jumpstart Your Business

Lots of people network but few reap the rewards of... Read More

Marketing ? Like a Game of Chess

Have you started thinking about your Valentines Day Promotion yet?It... Read More

Sales Resistance on the Rise

Have you noticed it? More and more marketing campaigns are... Read More

Using Purchased Leads

A little advice about using leads that you purchase from... Read More

Online Mentorship Programs: Cash in on Your Expertise

Whether you're a former retail store owner known for your... Read More

Did Jesus Get Killed for Practicing Interruption Marketing?

I'm reading Seth Godin's Permission Marketing and he brings up... Read More

Direct Mail Response Rates Mislead if You are Careless

I could tell you that the average temperature in the... Read More

Unique Marketing Ideas That Generate Cash!

First of all - keep in touch with your customers!... Read More

Communicating Our Attitude

The goal of successful marketing is to create long lasting... Read More

What You Need in Your Marketing Calendar

Marketing calendars are used by many businesses to help keep... Read More

Joint Venture: 50 Power Secrets Of Joint Venture Marketing, Exposed

What is a Joint Venture?A joint venture is an agreement... Read More

Timing and the Right Product Will Make Your Dreams Come True

Are you looking to erase your debt, buy that new... Read More

The Fundraising Letter PS: 25 Powerful Things To Say There (Includes Examples & Samples)

Donors read postscripts. This is a sad but important reality... Read More

Mortgage Marketing - What Your Client Wants

Your business depends on the success of your marketing efforts.... Read More

4 Ways to Get a Prospects Attention Fast

Can you remember the last dozen advertising messages beamed at... Read More

Notable News - Its Not About You!

You enjoy what you do. In fact, you love your... Read More

Are Corporate Awards and Corporate Gifts Beneficial for Your Business?

With the increased challenges that all companies are faced with,... Read More

Marketing to Hispanics/Latinos

A powerful consumer market with annual spending power exceeding $350... Read More