Breakeven Is A Launchpad for 800% ROI
Direct mail is a great marketing investment for bike shops. Direct mail doesn’t require inferring success from gains in awareness, recall and name recognition — although that is a benefit. People either respond, or they don’t. Should results disappoint, there is no place to hide.
A time-honored practice is to express direct mail results in terms of percent-of-recipients-who-respond, when using coupon redemption as a measure we call it conversion rate. It’s not unusual for vendors such as our selves to quote our national averages and how they compare to other statistics from the DMA or other sources. But what is a "good" conversion rate, and what does it really mean to the overall success of your campaign?
A response is “good” only if it returns a profit. If you need a 2.75 percent response to break even, then 2.5 percent isn’t so good. But if you break even with a response of just 1.5 percent, you could throw a party celebrating a 2 percent response.
That's why we focus on three key metrics - including conversion rate:
- Conversion rate; the number of coupons redeemed compared to quantity mailed
- Average net sale; total gross sales from coupon redemptions minus cost of goods and divided by redemptions
- Return on investment; total net sales minus project cost
So rather than expressing results in terms of percent-who-respond, show them in terms of Return On Investment (ROI). Suppose that a mailing of 20,000 pieces costing $8,000 brings in 500 coupons that account for $75,000 in net sales. Consider how much more relevant, informative and compelling it is to say “the campaign earned an 840 percent ROI” than to say “it pulled a 2.5 percent response.” Which is the more important number?
Now consider that those are actual returns from a Harvest client - a top-25 Trek Bicycle dealer
You could have those results too. But it rarely happens overnight, and we don't promise that it will. This dealer's results came with a multi-year commitment to direct mail marketing and an unyielding devotion to measurement and continuous improvement.
So if you are just getting rolling, consider the importance of break even before you focus on triple-digit ROI. What is your break even point? How much was the project and what is the right combination of conversion rate and average net sale to reach the break even point. Once you get there, you have established the launchpad for 800 percent ROI. You can get there, but it will take time. Best to start now.